Kevin Lings unpacks mini-budget: SA’s economic path needs urgent action to avoid stagnation

Speaking to Alec Hogg on this morning’s BizNews Briefing podcast, STANLIB’s chief economist Kevin Lings urged swift government action following South Africa’s medium-term budget update, citing low growth projections, high debt, and the need to capitalise on recent optimism. While supportive of public-private partnerships for infrastructure, Lings warns that delayed efforts could waste the nation’s current window of opportunity for economic improvement.

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In a recent interview with BizNews editor Alec Hogg, STANLIB’s Chief Economist Kevin Lings provided insights on South Africa’s latest mini-budget and its implications for economic growth, infrastructure investment, and investor confidence. Lings pointed out significant challenges in the country’s economic path, including low GDP growth forecasts, rising debt levels, and “fiscal slippage.” His assessment painted a complex picture of cautious optimism mixed with calls for urgent and decisive action from the government.

Lings, who has often attended the annual mini-budget lockups in Cape Town, opted this year to assess the budget remotely. This choice gave him a fresh perspective on the fiscal policy’s highlights without being immersed in its finer details. He remarked that the government’s strategy lacked the necessary “upbeat tone” and vibrant initiatives expected by market participants. According to Lings, the budget did not present a robust enough approach to lifting the growth rate, with growth forecasts for the next three years not surpassing 2%.

“The Minister projects a modest GDP growth of 1.7% next year and only reaching 1.9% over the next three years,” Lings stated. “These rates are far below what is required to make a meaningful impact on the labor market and government’s tax base.” He stressed that to create jobs in the formal sector—vital to a sustainable economy—the growth rate needs to reach at least 3% and remain there.

Despite these disappointments, Lings agreed that the mini-budget’s emphasis on public-private partnerships (PPPs) for key infrastructure projects was a promising strategy. He noted that these initiatives have significant potential but require a long-term commitment, underscoring that any meaningful economic turnaround from PPPs would take years to materialize. “These partnerships are essential for growth, but there’s no quick fix,” he explained. The slow pace of development, however, raises concerns over whether South Africa can wait that long given the urgency of its economic issues.

A critical aspect of the budget, Lings added, was “fiscal slippage”—the country’s inability to meet budget targets set out in February’s budget. “It’s similar to a company missing its profit targets,” he explained. “We’re looking at a projected tax revenue shortfall of R22 billion, combined with an additional expenditure overrun of about R10 billion.” Although these numbers aren’t massive in isolation, they collectively move the country’s finances in the wrong direction. This continued fiscal slippage puts pressure on credit ratings agencies, making it difficult for South Africa to attain a positive economic outlook without substantial economic growth.

Further complicating South Africa’s financial picture is the country’s growing debt, which Lings pointed out is expected to rise to over 75% of GDP. To contextualize the severity of this increase, he recalled that South Africa’s debt was around 23% of GDP in 2009 under then-Finance Minister Trevor Manuel. The question, according to Lings, is what tangible progress this accumulation of debt has achieved. “Looking at infrastructure, healthcare, and roads, there is very little to show for this deterioration in fiscal balances,” he said. Much of the government’s expenditure has gone to labor costs and servicing the debt itself, leaving limited resources for additional growth-oriented investments.

One positive takeaway from the mini-budget is the government’s renewed commitment to infrastructure, with state-owned entities (SOEs) Eskom and Transnet playing essential roles. Transnet, in particular, is preparing to release its network statement, inviting private sector involvement in operating rail corridors. This document is anticipated by the end of the year and could set the parameters for significant private sector contributions. “There’s a lot of interest from private investment funds and pension funds eager to support infrastructure, but the government needs to free up the system,” Lings noted, highlighting that private investors require assurances against corruption and maladministration.

Investor sentiment in South Africa, Lings pointed out, has shown signs of improvement, with positive movement in the currency, equity markets, and bond markets. Some of this sentiment has been driven by improvements in electricity supply and the government’s commitment to national unity, which has increased optimism. However, Lings emphasized that sentiment alone isn’t enough: “Sentiment can quickly fade if the government doesn’t build on it. The time to capitalize on optimism is now.”

Hogg, representing investor concerns, asked whether this sentiment boost could be another temporary “Ramaphoria” moment—a term used to describe the initial burst of optimism after President Cyril Ramaphosa took office—or if it represented something more sustainable. Lings responded with cautious optimism, pointing out that while the sentiment is broadly supported by CEOs and market participants, it must translate into actionable steps. He noted, however, that businesses, despite improved confidence, are not yet expanding operations or hiring due to uncertainties in government policy and concerns about political succession.

One major obstacle to investment, Lings highlighted, is the lack of clarity surrounding political succession within the ruling African National Congress (ANC). With President Ramaphosa’s term nearing its end, potential successors remain unclear, causing business leaders to hesitate on long-term investment commitments. “Many companies are looking at multi-year expansion projects, and they want assurance about the political future beyond Ramaphosa’s term,” Lings explained.

In concluding his analysis, Lings expressed a need for urgency from the government. He argued that while the initiatives outlined in the mini-budget are theoretically sound, South Africa cannot afford the luxury of time. He urged policymakers to adopt a more aggressive approach to implementing infrastructure initiatives and engaging the private sector. Without a bold commitment to tangible action, Lings fears that this time next year, the country could still be in a “lackluster” position, with little economic improvement.

Ultimately, while Lings acknowledged the potential in South Africa’s current strategy, he underscored that realizing this potential depends on the government’s ability to act swiftly and decisively. The sentiment is strong, and investment interest is present, but without clear and immediate action, South Africa risks missing a crucial opportunity to revitalize its economy and secure a brighter future for its citizens.

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