Markets give MTBPS an initial thumbs down, analysts note disappointing ‘fiscal slippage’

As Godongwana was speaking in Parliament on Wednesday, 30 October 2024, the rand lost ground and bond yields rose — clear signals that the markets were initially disappointed.

The rand fell to 17.73/dollar as he wrapped up from 17.61/dollar just before he started, while the yield on the 10-year government bond climbed about 10 basis points.

That is not a blow-out but is in contrast with previous Medium-Term Budget Policy Statement presentations by Godongwana, which saw at least mild gains by the rand and bonds in their wake.

Read more: Rand and bonds post mild gains after mini budget allays worst fears 

But expectations in the past were low, and this time round they were relatively high against an improving economic outlook.

“The initial news disappointed versus expectations,” Razia Khan, the chief economist, Africa and Middle East at Standard Chartered Bank, told Daily Maverick.

She noted weak revenue streams from sluggish growth and a widening of the fiscal deficit in the 2025 financial year as key initial concerns overshadowing the good news of projections of a larger primary fiscal surplus in the medium term. 

Read more: Markets give initial thumbs up to Godongwana’s ‘tough love’ MTBPS

The economic growth forecast for this year was downsized to 1.1% from 1.3% in the February Budget, while the government’s tax revenue estimate for 2024/25 was revised down by R22.3-billion.

“... government is still committed to stabilising its debt-GDP ratio after a steep increase in recent years; Treasury still expects this ratio to peak next year (at 75.5% of GDP). Notwithstanding this strategy to improve the fiscal prognosis, there was some slippage in the key fiscal metrics relative to the 2024 Budget forecasts,” Dr Elna Moolman, Standard Bank group head of South Africa Macroeconomic Research, said in a commentary.

“This worsening was broadly in line with our expectations in the near-term, but modestly worse than we expected in the medium term... Overall, the fiscal strategy and direction remain unchanged, but the extent of the fiscal slippage, though modest, remains disappointing.”

Still, while expectations may have been inflated, the Medium-Term Budget Policy Statement was seen as realistic. The economic growth forecasts of 1.1% this year and 1.7% for the next two years were seen as “somewhat conservative” by Moolman, which holds the prospect that they could be revised upward — a departure from the past when they have tended to be optimistic and subsequently slashed.

 “I felt the Medium-Term Budget Policy Statement was quite sensible,” Jee-A van der Linde, a senior economist at Oxford Economics Africa, told Daily Maverick.

Some analysts found it lacking in detail.

“There is a push to increase growth and decrease debt, but there were scant details on how the government actually plans to do this, and some of his statements were contradictory,” said Shawn Duthie, an analyst with Control Risks.

“⁠For example, prior to noting that the government needed to ‘better manage our debt’, Godongwana stated that the public sector wage bill must grow to ensure public servants are compensated fairly, despite the fact that previous increases have been above inflation.”

So this Medium-Term Budget Policy Statement did not shoot the lights out, but nor was it a complete flop. Over the next few days the markets will be digesting the reaction of the ratings agencies, and that will determine their next moves. DM