MTBP Speech 2023: Executive Summary

MTBPD – Executive summary of Enoch Godongwana’s speech, 1 November 2023

The South African economy is forecast to grow at 0.8% in 2023, slightly slower than the 0.9% projected in the February Budget speech. The forecast for 2024 to 2026 is 1.4% – below SA’s 1.6% population growth rate. However, the economy has grown to above pre-COVID levels.

The main budget deficit has increased by R54.7 billion from what had been expected in February’s Budget. This reflects a sharp fall in company taxes from the commodity-boom elevated levels of 2023; higher than expected public sector wage bill costs and higher projected debt-service costs. The expected deficit before borrowing is now 4.9% compared with 4.0% in the February Budget.

Action is being taken to review and reconfigure the structure and size of the state, in line with the President’s commitment in the 2023 State of the Nation Address. A joint plan to review government departments, entities and programmes over the next three years is being prepared. The President is expected to provide details in the 2024 SONA.

Spending has been revised down by R21 billion. Further reductions of R64 billion in 2024/25 and R69 billion in 2025/26 are proposed.

Additional funding of R24 billion this year and R74 billion over the medium term will be used to fund the 2023/24 public sector wage increase and the associated carry-through costs in these sectors. A further R34 billion is allocated to extend the Covid-19 Social Relief of Distress grant by another year.

To rectify the Eskom debt situation in municipalities, there have been applications from 67 local governments with debt totalling R56.8bn (97% of what is outstanding to Eskom from municipalities) to use Treasury’s invitation to write off the debt over three years. A total of 28 of these applications have been approved.

The review of Eskom’s coal-fired power stations commissioned by the National Treasury, is complete. Effective implementation of the recommendations will help transform the electricity sector.

The transition to New Energy Vehicles (NEVs) poses an existential threat to South African motor vehicle production. The government plans to implement tax incentives to support the automotive sector during this transition. Details will be provided in the 2024 Budget Review. Part of the broader strategy includes collaborating with other African countries to develop battery production capacity on the continent.

Transnet’s rail underperformance is estimated to have cost up to 5 per cent of GDP in 2022, with losses in the region of R50 billion in the minerals sector alone. National Treasury is working with Transnet and the Department of Public Enterprises to ensure that Transnet can meet its immediate debt obligations. Broader reforms of the logistics sector will be guided by the Freight Logistics Roadmap which sets out a clear path for enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector.

Treasury Regulations and key elements of municipal legislation are being amended in line with the recommendations of the completed review of the Public- Private Partnerships (PPP) framework.

Government will also widen the scope for concessional borrowing by creating new mechanisms through which private-sector investors and multilateral institutions can co-invest with government for selected infrastructure projects. This will include the use of build-operate-transfer (BOT) structures, PPPs and concessions, and application of the frontloading mechanism which provincial conditional grants now allows for. The 2024 Budget will provide further details on these measures.

Since February, when South Africa was greylisted by the Financial Action Task Force (FATF), a large number of government departments and agencies – including the police the Hawks, NPA, SIU, SSA, the Reserve Bank, FSCA, and SARS – have been working hard to address these deficiencies. The FATF noted at its plenary meeting last week that such work is showing positive results, with South Africa having addressed 15 of the 20 technical deficiencies in our legal framework, and making good progress on 17 of the 22 effectiveness action items, including 2 that are now deemed to be largely addressed. Government expects to address all the deficiencies identified by FATF by early 2025.

In summary, the Medium-Term Budget Policy Statement commits government to continue to support the economy, stabilise public finances and protect the social wage by:

Fast tracking the implementation of structural reforms, key being in the electricity and logistics sectors, to lift our growth prospects.
Adopting a prudent fiscal stance that supports growth, promotes investment and prevents the build-up of systemic risks to the economy.
Directing scarce fiscal resources towards key priority areas including frontline services and social protection while reducing inefficiencies and wastage.
Drawing inspiration from the Springboks, I am convinced that if we are united and remain committed to this trajectory that will lift up our growth prospects, we leverage the power of the collective, and persevere in this difficult environment, we will come out victorious.

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