Warren Wilkinson, franchise principal & financial adviser at Consult by Momentum, breaks down the key insights and takeaways from yesterday’s Medium Term Budget Policy Statement (MTBPS).

• Higher inflation is eroding purchasing power and has led to higher interest rates over the past year. Consumers remain under financial pressure with another two potential hikes over the coming six months, before an anticipated decrease towards the end of 2023.
• More aggressive interest rate hikes by major central banks have prompted capital outflows from emerging markets, raising fears of economic contractions in the near term. Expect car payments, credit repayments, debt servicing etc. to continue to rise over the near term. Debt cost will be higher in the near term, but the current interest rate is still below what it was before Covid ‒ before the aggressive rate cuts post-Covid, the interest rate was 10% p.a. and currently it sits at 9.75%.
• Economic activity has been further disrupted by a significant increase in both the frequency and intensity of loadshedding during the year. This will continue to disrupt consumers’ lives and hurt their wallets, and entrepreneurs and small business owners will be especially hard hit. However, it is somewhat reassuring to hear that government has intensified its focus on facilitating the ease of doing business.
• The Social Relief of Distress grant has been extended to 31 March 2024.
• Taking Eskom debt onto the government balance sheet is seen as a positive, but there need to be tight controls. There is also no clear indication of how the private sector will play a role in supporting the State to run the SOEs. There was also no news on SAA.
• There is a risk of further strike activity by public-sector workers. There is a CCMA hearing this Friday to continue the wage negotiations with government, which are at present below inflation. Government is in a precarious position: on one hand they have been criticised for a bloated public-sector wage bill, while on the other they need to appease public-sector workers.
• Credit rating agencies may hold our sovereign ratings unchanged, but we are likely to be grey-listed by the FATF.
• Fighting corruption and state capture still work in the favour of increased focus and funding. Progress is slow, but the NPAis making progress.
• The IMF has shared lower growth forecasts for the world, so SA is not alone in its bleak outlook. Offshore investors will need to take this into account. The UK is fighting the highest inflation it has seen in over 40 years.
• The president of the Energy Action Plan has announced 80 private-sector projects, 6000MW of power for R85 billion.
• There was a successful spectrum auction this year, which yielded 4 billion for the fiscus.
• Government debt to GDP ratio has improved, but will require fiscal discipline to see a sustained improvement.
• As a sector, approved building plans have been flat since 2007-2008. This is not Eskom’s fault ‒ at least, this time!
• SA mining and manufacturing activity has also been flat since 2010, compared to other emerging markets. We desperately need more private-sector involvement to help the state.

This post was based on a press release issued on behalf of Consult by Momentum.