Another year, another mini-budget

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2022 MTBPS Review: Relatively more pro-growth, and firmly consolidating

In previous years the MTBPS, otherwise known as the ‘mini-Budget’, has served as an economic and fiscal ‘fork in the road’, reflecting on Budgets past and setting out the policy framework for forthcoming Budgets.

In other words, the MTBPS is exactly what it says on the tin—a statement of National Treasury’s medium-term Budget policy. This year continues along the same path.

Economic reaction

However, the difference between the 2022 Budget and this MTBPS indicates a relative pro-growth and faster consolidation stance. The fiscal authority has used the persistent revenue overrun responsibly, reducing the fiscal deficit and debt trajectory. They have adopted a conservative approach by building buffers to cater for spending-related risks.

The cyclical revenue overrun, relative to the February projections, provides a favourable anchor for the near-term fiscal outlook, and a stronger SARS supports revenue collection over the medium-term expenditure framework (MTEF).

The total expenditure growth estimate for the current fiscal year is higher than previous projections, reflecting an increase in non-interest expenditure over the MTEF, while interest expenditure growth is slower in the outer years.

As a result of an improved revenue outlook and higher nominal GDP, the fiscal deficit narrows quicker than previously anticipated. Crucially, the primary deficit (i.e., excluding interest expenditure) reflects continued and faster fiscal consolidation and sustainability.

Gross government debt (total debt stock) now peaks two years earlier than previously projected. Government plans on taking a significant portion of Eskom’s R400 billion debt, with further details to be provided at the 2023 Budget.

In summary, we view this MTBPS (compared to the February Budget) as relatively more pro-growth, supporting service delivery while firmly sticking to the fiscal consolidation strategy within a highly-uncertain global economic environment.

Although there are implementation risks around the public sector wage bill, social spending, and contingent liabilities, government continues to consolidate—with the primary balance improving faster than initially expected and the debt-to-GDP ratio peaking earlier and at a lower level than previously envisaged.

Fiscal consolidation is critical, and any deviation from it would be detrimental to fiscal credibility and sustainability, leaving the economy trapped in a low-growth environment for longer. Therefore, fiscal consolidation should persist, but faster targeted growth-enhancing reforms must accompany it.

In this regard, we are encouraged by some reform progress, while more still needs to be done to improve the structural health of this economy and achieve a higher and more-sustainable economic growth path.

Economic growth lowered amid global and local headwinds

As expected, Treasury lowered its economic growth outlook and lifted its previously benign inflation projections, reflecting the global stagflationary trend that emerged at the beginning of the year.

Growth is lowered to 1.9% (from 2.1%) for the current year and stabilises at an average of 1.6% over the medium term, reflecting slowing global activity and intensifying domestic headwinds, including load-shedding, infrastructure constraints, and higher inflation.

Headline consumer inflation is materially lifted to 6.7% (from 4.8% previously) for 2022, and averages around 4.9% (4.4% previously) over the next two years.

Revenue outperformance supports continued fiscal consolidation

Total revenue (gross) is expected to grow by 7.6% in the current fiscal year, reflecting a sizeable revenue overrun of R83.5 billion relative to February when growth was at 3.3%. Total revenue is expected to be higher by R94.6 billion in 2023/24 and R99.7 billion in 2024/25, reflecting average growth of 6.4% (previously 6.3%) per annum.

Revenue performance for the current fiscal year has largely been underpinned by corporate income tax (CIT) revenue, up by 14.7% in the fiscal YTD versus a 15.2% contraction projected in February. Better-than-expected personal income tax (PIT) revenue and other critical revenue items—such as taxes on international trade and property taxes—have also underscored improved total revenue performance.

Treasury expects Value-Added Tax (VAT) revenue growth (revised lower by R4.8 billion in 2022/23) to remain subdued as consumer headwinds persist.

Total expenditure has increased over the Medium-Term Expenditure Framework (MTEF) and is estimated to reach R2.1 trillion by 2024/25, reflecting an annual average growth of 4.4% increase in non-interest expenditure over the MTEF—while debt service cost is higher by R5.9 billion in 2022/23, but lower by R2.8 billion and R10.7 billion in the two outer years.

For the current fiscal year, spending is up by R37 billion to accommodate a higher social wage, and support growth.

To support poor households, the Social Relief of Distress Grant (SRD) has been extended to 2023/24, and further support has been provided for free basic municipal services.

Furthermore, funding for health, education, and law enforcement capacity has been boosted. These include headcount growth and a projected 3% increase in the total public sector wage bill over the MTEF, which is higher than the 1.8% assumed in February.

Government is also seeking to prioritise spending on municipal and provincial infrastructure (particularly water & transport), and spending on fixed infrastructure is projected to rise by 19% on average per annum.

Further allocations have been made to Denel, SANRAL, and Transnet to the total tune of R29.7 billion, with additional exposure to R8.4 billion for Denel and the Land Bank’s going concerns. Government will also take over a portion of Eskom’s R400 billion debt, but this is yet to be budgeted for—and details have unfortunately been deferred to the 2023 Budget.

The fiscal deficit is estimated at R323.7 billion (4.9% of GDP) for 2022/23, compared to R387.2 billion (6.0% of GDP) previously. It steadily narrows more quickly to 3.7% of GDP by 2024/25 on the improved revenue outlook and higher nominal GDP.

In line with this, the primary deficit improves from an outturn of 0.9% of GDP in 2021/22 to a surplus of 0.7% (previously 0%) of GDP by 2023/24. Gross government debt now peaks at 71.4% of GDP in 2022/23, lower and earlier than the previously-projected peak of 75.1% of GDP in 2024/25. These reflect continued and faster fiscal consolidation and sustainability, but implementation risks are critical.

Market implications

This was a steady budget from a market perspective, striking a decent balance in being equity and bond friendly. The rand held firm, bond yields came down across the curve, and the equity market held its own.

The Financials 15 index spiked up during the speech, and the Mid-Cap Index (a good proxy for SA Inc) turned positive during the delivery after having traded in the red for most of the day. For bonds: Budget deficits are forecasted to be smaller than what the market was expecting over the MTEF. While some of the revenue overrun will be used to further reduce debt, the adoption of Eskom debt could have an impact here, and some adjustments are likely in February. Nevertheless, Treasury remains committed to prudent expenditure management, which the market will like.

For equities: This was a positive budget because of an increase in government spending. The confirmation that government will offer public servants an increase of 3% for the year (backdated to April 2022) may aid consumption expenditure locally, while the re-commitment to infrastructure investment will be positive for employment and construction-related entities.


Mamello Matikinca-Ngwenya, Thanda Sithole, Siphamandla Mkhwanazi, and Koketso Mano are all economists at FNB.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

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