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Mid-Term Budget Policy Statement: Should South Africa Be Worried?

Global Market	1078 VIEWS
Global Market
1078 VIEWS

Friday, November 01, 2019 / 03:00PM / United Capital Research / Header Image Credit: TimesLIVE

Recently, South Africa's Minister of Finance, Tito Mboweni, presented the 2019 Medium Term Budget Policy Statement (MTBPS), with a review and outlook on the country's fiscal conditions. While South Africa continues to be a strong economic force in the African continent, the policy statement highlighted some of the challenges that continue to undermine the country's economic performance - high unemployment rate, Eskom debt issues and rising debt levels.

Specifically, the MTBPS reviewed downward the country's FY-19 economic growth, from 1.5% projected in Feb-19, to 0.5%. This was amid the underwhelming performance recorded in Q2-19, where GDP grew marginally by 0.9 y/y, owing to weakening global trade and electricity supply shocks that seeped into the performance of its key sectors; Mining (-2.1%y/y) and Manufacturing (0.5%y/y). Also, South Africa's debt level remained a key concern, as debt to GDP ratio stood at 56.7%. What's more, is the continuous bailout funds being plowed into the highly indebted power-giant, Eskom. With the government set to deploy a comprehensive set of structural reforms on Eskom's operations, including a R230bn ($15bn) intervention over the next 10 years and an unbundling into three separate entities, the MTBPS forecasts debt to GDP to surpass 70% of GDP by 2023.

Considering the above, the key question here is, should South Africans be worried about the country's current economic trajectory? We believe so. However, in view of the 2020 budget, the MTBPS identifies the need to reduce public service wage bill, boost additional revenue and encourage private-public partnership, with a hope to improve South Africa's economic performance.

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