Casey Sprake, a chief economist said that this year's controversial Budget Speech will be tabled against a global backdrop of heightened political and economic uncertainty and Finance Minister Enoch Godongwana will have to address several issues.
The economist said that although geopolitical tensions with the US remain a key risk, the local economy has entered the year with notable momentum, supported by easing inflation, a more accommodative monetary policy, a stable electricity supply, and improving business and consumer confidence.
She said that structural reforms are progressing, and while logistical bottlenecks persist, operational improvements are becoming increasingly evident, albeit somewhat overshadowed by external volatility.
Is the GNU successful?
Sprake said that the Government of National Unity (GNU) appears to be holding up, adding a degree of political stability that supports ongoing economic reform efforts.
“However, global risks have escalated significantly, particularly following a series of executive orders by US President Donald Trump. These include tariff hikes on select US imports and retaliatory measures from affected countries, adding to trade uncertainties,” she said.
US aid and its consequences
Sprake said that the US stopping all aid to South Africa could mean that Godongwana and National Treasury may be forced to absorb the costs previously covered by US aid and this could introduce additional fiscal pressure and reinforce a conservative budget stance.
Despite these challenges, the Anchor Capital economist said that seasonally adjusted tax revenues for the year to date remain in line with Treasury’s latest forecasts for FY24/FY25.
“We expect the government’s growth and revenue projections to be largely unchanged, though downside risks to the medium-term outlook have increased materially. Expenditure has also been contained and remains on track to meet fiscal targets.”
Other risks that will impact the budget
This year's budget is contentious, given that it was postponed over the possible Value Added Tax (VAT) debacle and the infighting between the Democratic Alliance (DA) and the African National Congress (ANC).
But there are other issues impacting the budget, according to Sprake and these include:
- The withdrawal of US aid/assistance to SA: Potential fiscal costs if Treasury assumes financial responsibilities previously funded by the US.
- The public sector wage bill: A higher-than-budgeted wage offer to public sector employees poses an upside risk. However, some costs may be absorbed through employment restraint or budget reallocations — options that are becoming increasingly constrained.
- Social grants: A recent High Court ruling to relax the eligibility criteria for the Social Relief of Distress (SRD) grant and to progressively increase the grant to align with inflation and the cost of living presents another spending risk. While this decision is currently suspended pending appeal, it could impact National Treasury’s attempts to contain expenditure.
- State-owned enterprises (SOEs): Transnet has indicated that it requires R50bn from the government over three years. However, some of this could be sourced from the Budget Facility for Infrastructure (BFI, a budget reform initiative to support priority infrastructure projects) with minimal additional fiscal impact. Eskom’s debt swap may be converted into a loan spread over the forecast period.
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