Economic Commentary: Budget Speech Review
Momentum have released their research note titled, REVIEW: National Budget 2022, prepared by the Momentum Macro Research Team.
Initial impressions: Treasury’s medium-term economic forecasts appear credible. It’s expected average economic growth rate of 1.8% between 2022 and 2024 is broadly in line with our own expectation and that of the Reuters median consensus estimate of 1.9%.
Effect on the economy and financial markets over the MTEF: Household consumption expenditure will likely be supported by inflationary relief of 4.5% in the personal income tax brackets and rebates (R13.5 billion in foregone revenue), no change to the general fuel levy or the Road Accident Fund levy (which will further lower consumer headline inflation), average annual growth of 1.5% over the MTEF in the number of social grant recipients and a 12-month extension of the Social Relief of Distress grant.
Treasury’s resolve to restrain spending likely to be tested in the longer term: A legal battle ensuing between public-sector workers and government on the third year of the 2018 wage agreement is likely to be ruled in favour of Treasury. If not, Treasury acknowledged this could add R75 billion in unbudgeted expenditure by FY22/23. If translated into headcount reductions, between 30 000 and 35 000 jobs could be affected unless further reprioritisation in the budget is assumed.
State-owned enterprises (SOEs) still facing financial malaise: The average return on equity for SOEs has averaged a staggering rate of negative 10.8% in the last three fiscal years due to higher employee salaries, elevated debt-service costs and the damaging effects of the pandemic on demand.
Pro-growth reforms necessary for a faster economic growth path: Despite a number of economic and political reform efforts, relative governance indicators have yet to show a marked improvement on a global comparison and most show a deterioration relative to a decade ago. As such we maintain our longer-term potential growth rate of 1.5% to 2%, given the current pace of structural reform efforts.
Credit neutral in the near term but longer-term sovereign rating risks loom: While the growth rebound from the COVID-19 pandemic has surprised positively, SA’s tepid forecasted growth profile suggests a high likelihood of SA underperforming the bottom quartile of global countries in the medium term.
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