Economist Frank Blackmore Analyzes Mid-Term Budget Expectations Amid Fiscal Overrun Speculations

 Thanks for joining us Frank. I wanted two numbers from you at the outset. Number one, the size of the overrun that people have been talking about ahead of that budget and then secondly, what that will mean for that big deficit number. Yes, I think on the on the plus side, we are expecting an overrun and you know, back of the envelope between 100 and 130 billion, ray and so extra. Okay, so that's on the offer on the fiscal side, all right. What about on the budget deficit number? The deficit number mega opposite percentage point or two, I think we in the right situation for it, but we might come to that in this. It all depends on, you know, will the government take on some of his comes debt onto its balance sheet. I think there is room for some extra borrowing if that borrowing is used productively and therefore, you know, I'm not I'm not too worried about a little more debt and and therefore an expansion in that deficit number. Yeah, so I've seen various figures as well. So you are in the hundred hundred and thirty billion round ballpark. I've seen people suggesting that perhaps we could be sitting somewhere around 87 billion. So we're not sure, but we know that there's going to be a lot more money inside government quarters than we expected. Okay, so let's just perhaps build a story around where that money is coming from and what the minister is likely to do with it. Yeah, I think that's a good point. I think there are two main impacts that likely contributed to this one was still resources. We know the current current balance was still in the surplus in the first quarter reversed a bit in a second, but I think it's still expected to remain largely positive or better than long term trend over that coming period. So that's the one source. The other is, of course, inflation. So if all prices go up the vet on those prices means that in nominal terms, you're also collecting more tax. So both of those, I think, will contribute to to the extra gains. So the markets appear to be anticipating a boring budget. I wondered your characterization before we talk about the other S-com question. Yeah, well, I don't have a budget can ever be boring given how many sensitivities and sides of the story there are as well as how many people are fighting for application, the use of this extra let's call it budget. Yeah, I think it will be a sort of on the road to normality in terms of budgets, you know, we've gone through a tumultuous couple of years reacting to COVID, having to borrow spending on things we wouldn't have imagined unemployment grants and vaccines, etc. And now I think this budget is a return to, let's say, post-COVID budget team. We have to address the situations that were with us prior to COVID, low growth problems with electricity supplies, you said, other infrastructure that's getting old and finding a way to get this economy moving again. Hmm, which he certainly needs to do, there's no question about that. Let's see if he does. The other characterization that I had in my head was asking the question whether this is an activist minister or not, but I think we can park it and then we can have that conversation after he is delivered. This will be the second one, right? We can, I think, begin to call him what we think he actually is. Let's talk a little bit about how he's going to use that overrun on the fiscal side. I've seen two schools of thought. One is that he's going to use it on SCOM. I have had suggestions of a total take-off of SCOM's debt, 400 billion run, all of it, and suggestions that that could be half. I want to know where KPMG stands and then the other side to the usage of that money has been around increasing grants. Again, I wanted to know the house view at KPMG. I think just to contextualize your question here, you know, South Africa has got basically two main goals. It has to find growth like any other economy out there, but not only growth. It's also got to look after the people who are not included in the economy, hence the social wage question. I think the Minister will again try and balance these two out, although I think in past budgets and policies, we've focused a lot on the social wage, short term, mischtaught goals, and neglected the longer term growth aspects. I think now we've got to a point given the breakdown in the energy supply that we need to focus on it. Our view is they will probably start by not taking the entire debt on balance sheet, but perhaps half the debt on balance sheet that provides a bit of a fiscal room to SCOM and itself to direct funds elsewhere, as well as to perhaps going to the market game to borrow to sort out the sort of crisis we're in. I think another important component is not that SCOM is expected to do this all by itself. The two issues on the table, the one is when will we see the division of SCOM into the three sub-divisions, as has been spoken about for quite a while now? I don't blame them for not doing it during the COVID period, but perhaps this will also sort of come out of the changes that we likely to see over the coming months. And then secondly, is how do we track more private sector investment into the space and create less of a monopoly, but more options in our economy? Because I think we've seen in terms of our growth rates what the vulnerability is to a single supplier, no matter how that single supplier is performing, will be it in our case, it's not great. On the other hand, I think the sort of social relief of the stress grant, we could see an extension of that given that we do have a surplus in revenues. And then of course, there's been discussion about will we see a basic income grant? We don't think so at this point yet. I don't think we're physically strong enough to nail our colours to the most on that one as a country and commit those funds because once they pay, you can sort of retract that. So it's going to be a balancing act, but I do hope we see quite a bit of infrastructure or sort of capital expenditure or even the groundwork for capital expenditure to ensure the growth in the years to come as well as balancing out a bit of these short term issues.

Frank Blackmore, Lead Economist at KPMG joins CNBC Africa to preview Finance Minister Enoch Godongwana’s Medium Term Budget Policy Statement.  

Economist Frank Blackmore on the mid-term budget expectations

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Economist Frank Blackmore on the mid-term budget expectations

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