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Charts Showing What to Look for in Mboweni’s South Africa Budget

Charts Showing What to Look for in Mboweni’s South Africa Budget

  • Markets seek measures to manage debt, narrow budget deficit
  • Plans to fund coronavirus vaccine likely to feature in budget

South African Finance Minister Tito Mboweni is expected to outline steps to revive an economy ravaged by the coronavirus pandemic while halting a deterioration in public finances in Wednesday’s budget.

These charts show what to look out for as he presents the fiscal framework for the next three years.

Confirmed Vaccines

Source: Citi Research

The minister will probably detail plans to pay for Covid-19 vaccines. While the Treasury estimates it could cost as much as 24 billion rand ($1.6 billion) to immunize 40 million people, or around two-thirds of South Africa’s population, it’s unlikely to bear all the costs.

The country’s biggest companies are in talks to help finance and facilitate the rollout, and medical insurers may pay to vaccinate their members and possibly subsidize the cost for an equal number of non-members.

Read more: South Africa’s Upside Tax Surprise May Help Pay For Vaccines

The Treasury’s options to fund vaccines include raising taxes, increasing borrowings, re-prioritizing existing budgets and using available cash in the government’s bank accounts, Director-General Dondo Mogajane said last month. Data has since shown revenue will probably overshoot October’s mid-term budget estimates and could reduce the risk of tax hikes over-and-above previous forecasts.

Marginal Improvement

South Africa's budget gap may narrow due to higher tax collections

Source: National Treasury, Bloomberg

Note: Data is for financial years ending March 31

The consolidated budget deficit may be 13.9% of gross domestic product this fiscal year, according to the median estimate of 22 economists in a Bloomberg survey. That’s less than the Treasury’s October estimate of 15.7%, and mainly due to better-than-expected tax collections.

Still, it would be the largest shortfall since 1914, when the gap was at 11.6% of GDP. The deficit for the year through March 2022 is seen by economists at 9.7% of GDP.

The Treasury last year said it plans to raise an additional 40 billion rand through taxes in the medium term, starting with 5 billion rand in 2021-22. Economists expect this to come from excise duties on alcohol and tobacco products, fuel levies and by not adjusting tax brackets for inflation, rather than new measures such as a wealth or solidarity tax.

Debt Burden

South African government debt is seen peaking at close to 100% of GDP

Source: National Treasury

Note: Chart shows data fiscal years ending March 31

The market will look to Mboweni for an update on Treasury’s liability-management plan that sees debt peaking at 95.3% of GDP in the 2026 fiscal year. While the government backs his target for a primary budget surplus in the same year, 65% of economists surveyed by Bloomberg don’t see it being reached.

The Treasury is expected to outline how it will reduce the cost of servicing loans -- the fastest-growing expenditure item since 2011. That could include selling a short-dated bond or reducing the size of its weekly auctions for the next fiscal year.

Read More: South Africa Plans Short-Dated Bond to Lower Borrowing Costs

Pay Politics

Growth in state workers' pay outpaces that of the private sector

Source: National Treasury, Bloomberg

Note: Chart shows data for the fiscal years ending March 31; The Treasury didn't honor an increase due in 2020 as part of a previously agreed deal

It remains to be seen if Mboweni will hold the line on the goal to curb expenditure by about 300 billion rand over the next three years, mainly by freezing state-worker salaries. That’s after it drew harsh criticism from politically influential labor groups, civil-society organizations and some opposition lawmakers.

With a pay dispute between the government and its workers in court and a new round of negotiations for a multi-year agreement due to start later this year “the minister’s hand would be significantly weakened if he walks back on that,” said Andrew Duvenage, managing director of NFB Wealth Management.

Read more: South African Government Workers Take Pay Dispute to Top Court

Financial Burden

South Africa's loss-making state companies are sapping revenue

Source: National Treasury

Note: Chart shows data for fiscal year that ends March 31, estimates shown for 2020-23

Mboweni faces pressure to stretch South Africa’s finances even further by continuing to support beleaguered state-owned companies. The Treasury may now allocate funds to the Land and Agricultural Development Bank of South Africa, responsible for almost 30% of loans to the agricultural sector. A potential restructure of power utility Eskom’s debt and the announcement of a private equity partner for South African Airways would alleviate some of the pressure on state coffers.

Sluggish Growth

The last time South Africa's economy expanded more than 3% was 2011

Source: Statistics South Africa, IMF

After South Africa’s economy probably contracted the most in nine decades last year because of Covid-19 lockdowns, focus will turn to structural reforms. That includes steps proposed by the Treasury in 2019 to lift economic growth by 2 to 3 percentage points and create more than one million jobs over a decade.