Persistent power cuts, infrastructure bottlenecks pressure growth
South Africa’s Finance Minister Enoch Godongwana cut the country’s growth forecast by half amid worsening power shortages that have hobbled the country’s ability to earn more from its commodities and expand manufacturing production.
Godongwana estimates the economy will grow by 0.9 percent in 2023, down from the 1.2 percent he announced last October when he presented the medium budget. The forecast is higher than the 0.3 percent forecast by the South African Reserve Bank last month, and the 1 percent average forecast of 15 economists surveyed by Reuters. Growth is estimated at 2.5 percent in 2022.
“This is an upward revision from 1.9 per cent projection in the 2022 (medium-term budget), reflecting a better-than-expected outcome in the third quarter of 2022,’’ Godongwana said. “At R4.6 trillion, the size of the economy in 2022 was bigger than the pre-pandemic levels in real terms, evidence of a robust economic recovery even in the face of lingering COVID-19 scarring.’’
South Africa is to take over more than 60 percent of the debt of struggling power utility, Eskom Holdings, over the next three years as the government seeks to banish an energy crisis that has crimped growth and threatens the country’s credit ratings.
South Africans endured 207 days of blackouts in 2022 – the most on record – and have been short of power everyday this year as Eskom battled plant breakdowns and run short of money to buy diesel. Currently Eskom is 6,000 megawatts below the target needed to avoid loadshedding and requires new generating capacity to meet the deficit.
Godongwana earlier told parliament the government will take over R254 billion of Eskom’s R422 billion debt to help the parastatal recover from a decades long crisis that has seen record power shortages. He said the goal was to strengthen Eskom’s balance sheet, enabling it to restructure and undertake the investment and maintenance needed to provide power.
For the 2023 fiscal year, government’s budget deficit is expected to fall to 4.2 percent of gross domestic product, lower than the 4.9 percent projected at the medium term budget presentation last October. It’s forecast to decline further to 3.2 percent in the 2024 fiscal year, including the impact of the Eskom debt takeover.
“Mainly due to this Eskom debt relief, government debt will stabilise at a higher level of 73.6 per cent of GDP and in 2025/26. This is three years later than anticipated in the 2022 Medium Term Budget Policy Statement. In general, government debt is high,’’ he said, adding that total South African debt is expected to reach R5.84 trillion in 2025/26.’’
South Africa’s tax revenue collection for 2022/23 is expected to amount to R1.7 trillion, R90 billion rand higher than forecast.
“The improvement in revenue is due to higher collection in corporate and personal income taxes, and in customs duties,” Godongwana said. “Our country is reaping the benefits of a more efficient and effective tax administration, that is building trust to increase voluntary compliance and boost revenue collections.”
Godongwana admitted that the fiscal consolidation strategy adopted several years ago has hurt growth in consumption expenditure, and has also allowed government to use part of its higher-than-expected revenues to reduce the deficit.
“As a result, we are bringing the fiscal deficit down without resorting to tax increases or further cuts in the social wage and infrastructure,” he said.
The Government says spending will amount to R7.1 trillion over the next three years, of which 51 per cent or R3.6 trillion is allocated towards social wage.
The 2023 Budget allocates an additional R227 billion also carried over the next three years, mainly to extend the Covid-19 social relief of distress grant until end of March 2024, improve investment in local and provincial government infrastructure, as well as education and health services.
