Where the pressure on public finances is from
Absa bank has added its voice to a list of institutions decrying the country’s public finances, which it says are challenged by weak growth and spending pressures.
SA’S fourth-largest bank warns that these pressures will only add to slippage in the present fiscal year and probably carry over into 2024/2025.
Finance Minister Enoch Godongwana is to present the 2024 budget on February 21 against the backdrop of a challenging growth outlook, and rising demands for higher spending.
Godongwana will be concerned about the outcome of the elections, the potential effect on policy and the government’s ability to implement policy in the next five years.
Also, given that the budget comes ahead of the elections, one of the big questions is whether government will announce big bursts of spending on areas such as free higher education or a basic income grant, said Absa senior economist Miyelani Maluleke.
“We have not pencilled into our baseline any new major spending allocations. SA does not have a history of sudden expenditure increases ahead of elections,” said Maluleke.
Maluleke warned, though, that the country’s expenditure side is more challenging.
He said that in the medium-term budget policy statement last November, the Treasury announced that in-year spending risks of R29.4bn, including a higher wage bill, would be plugged through expenditure reprioritisation.
The reprioritisation was to be through a combination of cuts in baseline spending, projected underspending for some programmes and a drawdown on the contingency reserve.
Absa expects expenditure slippage of R27bn for the 2023/2024 fiscal year against the medium-term budget target.
The economy came under severe pressure in the past year with the worst bouts of loadshedding on record, further deterioration in rail and port performance, weaker terms of trade and constrained consumers.
Consensus is that logistics infrastructure constraints seem likely to drag on for longer.
The performance of the freight rail network deteriorated at a staggeringly rapid pace over the past few years. Transnet’s data shows freight rail volumes in 2022/23 were down a third compared with the most recent peak in 2017/18.
This presents a huge challenge to bulk commodity producers, and saw economic activity fall in the third quarter, disappointing forecasts and shrinking by 0.2% quarter-onquarter.
Maluleke believes delivering a meaningful deficit reduction will be difficult amid weak growth and the difficulty of cutting spending. Further bailout support, particularly for Transnet cannot be ruled out and the Social Relief of Distress grant will likely be made a permanent feature.
Absa considers the National Health Insurance Bill, approved by parliament and sent to President Cyril Ramaphosa to sign into law, one of the big risks in the medium term.