Finance Minister Enoch Godongwana delivered his medium
term budget speech on Wednesday. He said that South Africa’s economy has
underperformed for many years noting several long-standing structural problems
that has hampered the country’s growth. These include the unreliable
electricity supply, costly and inefficient ports and rail network, crime and
corruption, weak state capacity, and high
levels of market
concentration and barriers
to entry that
suppress the emergence and growth
of small businesses.
‘’These challenges undermine our efforts to create
jobs, contributing to high levels of poverty and inequality. Our structural
challenges have been exacerbated by new ones, including the global economic
slowdown, high energy and food prices; and the destruction caused by natural
disasters such as the recent floods. The 2022 Medium Term Budget Policy
Statement aims to address the needs of South Africans and secure our future
stability and prosperity.’’
According to Godongwana, the economic risks that was
outlined in the February 2022 budget speech has materialised.
Globally, these include: rising inflation, tightening
financial conditions and the ongoing effect of COVID-19, including the hard lockdowns
in China and their impact on global demand and supply chains. These were made
worse by the outbreak of the Russia-Ukraine conflict.
As a result, the IMF’s global growth forecast for 2022
has been revised down, from 4.4 per cent to 3.2 per cent, and the 2023 estimate
from 3.8 per cent to 2.7 per cent.
The finance minister said the recovery of economic
activity in early 2022 was disrupted by floods in various parts of the country,
industrial action in key sectors, and widespread power cuts. According to
Godongwana, Government expect real GDP growth of 1.9 per cent in 2022, compared
with an estimate of 2.1 per cent in February.
Over the next 3 years, the economy is expected to grow
at an average of 1.6 per cent.
The minister admitted that there is a crisis in the
country’s logistics sector. Inefficiencies in port and rail are costing the
economy billions and further undermining efforts to raise growth.
As for strengthening state capability, Godongwana said
that a strong and capable state is a necessary precondition for growth.
The state is responsible for creating and maintaining
an enabling environment for growth and investment, it provides basic services,
and promotes the rule of law.
Over the medium term, government’s combined spending
on building new and rehabilitating existing infrastructure will increase from
R66.7 billion in 2022/23 to R112.5 billion in 2025/26. This includes roads,
bridges, storm-water systems and public buildings.
According to Godongwana, the possibility of a major
price correction in financial markets is a significant risk. This will affect
fiscal revenues going forward. The medium-term strategy therefore, needs to
maintain a practical approach to fiscal policy.
The minister says they also expect gross government
debt to stabilize at 71.4 per cent of GDP in 2022/23.
This means that they are proposing that no budget
reductions are implemented in the 2023 Budget. In fact, combined government
spending will exceed R2.2 trillion this year and will rise to R2.5 trillion in
2025/26.
The gross tax revenue estimate for 2022/23 has been
revised up, by R83.5 billion, to R1.68 trillion.
The government is allocating a net addition of R13
billion in spending adjustments for the 2022/23 financial year in the Adjustments
Appropriation Bill.
The largest adjustment — R6.3 billion, or 49 per cent
of the total —– is allocated towards disaster relief.
Other adjustments in the Adjustments Appropriation
include:
· R389 million for 24 rural bridges through the Weli-sizwe
Rural Bridges programme
·
R500 million is also set aside to kick off the Home
Affairs digitisation project, that will employ 10 000 young people over 3
years.
·
R118 million to deal with interim relocation costs and
to prepare for the rebuilding of Parliament.
Medium-term changes to
spending plans are driven mainly by government’s decision to extend the special
COVID-19 Social Relief of Distress grant by one year, until 31 March 2024.
The fiscal framework
also includes funding for the carry-through costs of the 2022/23 public service
wage increases, as well as for safety and security, infrastructure investment
and service delivery.