Economist Frank Blackmore on the mid-term budget expectations

Economist Frank Blackmore, Lead Economist at KPMG, joined CNBC Africa to discuss the upcoming Medium-Term Budget Policy Statement by Finance Minister Enoch Godongwana. Speculations have been swirling around the potential size of the fiscal overrun and its implications on the budget deficit. Blackmore hinted at a possible overrun between 100 and 130 billion rand, which could result in a deficit increase by a percentage point or two. However, he noted that if the government strategically allocates this extra borrowing into productive areas, an expansion in the deficit might not be a cause for concern. The sources of this unexpected revenue influx are primarily attributed to improved resource balances and inflation. The surplus in the current account balance, coupled with rising oil prices, is expected to bolster tax revenues. As the markets anticipate the budget presentation, Blackmore emphasized that despite the potential surplus, the budget is far from dull given the pressing socioeconomic challenges facing the nation. Addressing the looming budget presentation, Blackmore foresees a return to pre-COVID fiscal priorities, focusing on addressing longstanding issues such as slow economic growth and ailing infrastructure. Acknowledging the dual goals of fostering economic growth and social welfare, Blackmore stressed the importance of striking a balance between immediate relief measures like social grants and long-term growth investments. Regarding the allocation of the fiscal overrun, Blackmore outlined two potential avenues of expenditure: supporting struggling power utility Eskom and enhancing social welfare programs. KPMG's perspective leans towards a measured approach, suggesting that only a portion of Eskom's debt be absorbed by the government while leaving room for diversifying funding sources through market borrowing. Additionally, Blackmore emphasized the need for structural reforms within Eskom, including the long-awaited division into three subdivisions, to attract private sector investment and stimulate competition in the energy sector. While the possibility of extending the social relief distress grant exists with the revenue surplus, Blackmore expressed caution regarding committing to a basic income grant at this juncture. He highlighted the intricacies of funding commitments and the need for a sustainable fiscal position before initiating such programs. Blackmore underscored the importance of channeling resources towards infrastructure development and laying the groundwork for future growth to steer the economy towards a path of recovery and resilience.