Thursday, October 27, 2022

Medium term budget speech - October 2022

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.

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