Triple blow for South Africa

Economists at the Bureau for Economic Research say that South Africa is being pummeled from three fronts this year so far – with lower tax collections, higher government spending, and rising debt costs due to high interest rates putting the economy under severe pressure.

Commenting on a week of intense economic data, the BER said that season fluctuations in August – which showed an improvement in some aspects – cannot hide the bleak longer-term outlook for the economy.

According to the SA Revenue Service (SARS), South Africa recorded a bigger-than-expected preliminary
trade surplus of R13.3 billion in August – however, the BER said this was lower than the downwardly revised surplus of R15.4 billion in July.

On a monthly basis, exports rose by R7.8 billion (4.5%), led by increased shipments of base metals (+14% m-o-m) and mineral products (+10% m-o-m).

The value of imports also increased relative to July and was up by R10 billion (6.3% m-o-m). This was mainly due to notably higher purchases of chemical products, original equipment components, wood pulp and paper products (all three categories rising by 22% m-o-m) and vehicles (+19% m-o-m).

“While the year-to-date (January to August) preliminary trade balance sits at a reasonable R32 billion surplus, it is substantially lower than the R160.5 billion surplus in the same period last year,” the economists said.

In line with other expectations, data from the National Treasury showed that SSouth Africa’s monthly budget balance improved to a deficit of R47.3 billion in August, from a R143.8 billion deficit the month prior.

“However, this was a slight deterioration compared to a deficit of R42.6 billion in August 2022. While
the monthly data is influenced by a fair amount of seasonality, the fiscal year-to-date figures
remain of concern,” the BER said.

The data for April to August 2023 show that gross tax revenue increased by only 2.5% y-o-y – this, compared to an expectation in the February budget that gross tax revenue would increase by 5.6% for the entire 2023/24 fiscal year.

“If the current underperformance of tax receipts is maintained through the entire fiscal year, it would mean a tax revenue shortfall of R53 billion relative to budget expectations,” the BER said.

At the same time, main budget expenditure surged by 9.1% y-o-y in the April-August period against the February budget, which had pencilled in expenditure growth of 1.5% for the entire 2023/24 fiscal year.

The fiscal accounts are being hit on three fronts: lower tax revenue, higher expenditure, and rising debt-service costs amid higher long-term global and domestic interest rates,” the BER said.

On the interest rate front, the BER added that the impact of the current rates – which remains in restrictive territory following a hold by the Reserve Bank in September – is being felt in South Africa’s job sector, where businesses remain under pressure due to prevailing economic conditions.

Economists and analysts have also taken a slightly more bearish stance on interest rates, giving the hawkish sentiment coming from the SARB and the overall high-risk environment leading up to the 2024 elections.

Previously, there was an expectation that the Reserve Bank would hold on rates until early 2024 before starting a cutting cycle. However, analysts have pushed this start date back, likely only in the year’s second half.

This means that interest rates will remain restrictive for longer, adding South Africa to the list of countries that are maintaining a high-interest-rate environment.

Read: Shift in interest rate expectations for South Africa

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