Medium Term Budget Speech Preview and Rand Outlook

When is the Medium Term Budget Speech?

Recently appointed Finance Minister, Mr. Enoch Godongwana will deliver his maiden Medium-Term Budget Speech on the 11th of November 2021 at 2pm (local time).

What to expect from the MTBPS?

Mr Godongwana has alluded to maintaining the fiscal path set before him by his predecessor Mr Tito Mboweni.

The fiscal framework set in February looks to support to the economy and public health services in the short- term, while ensuring the sustainability of public finances over the medium term. Within this framework the goal is to narrow the budget deficit and achieve a surplus by 2024/25. Government debt is expected to stabilize at 88.9% of GDP by 2025/26 before declining thereafter.

Economic conditions improved in the near term

Gross Domestic Product (GDP) growth post the ‘worst’ (hopefully) of the pandemic lockdowns might flatter the debt to GDP figure in the near term, ahead of previous forecasts. Revenue collections look to have significantly improved, supported by the mining industry which has undergone a mini ‘boom’ following a surge in economic activity and commodity prices.

Risks to expenditure

While revenue collection and GDP has improved, the budget may not benefit as much thereto following the country’s riots in July and subsequent reintroduction of social grants, which have been extended until March next year. The future of welfare and social grants, the public sector wage bill (a delicate balancing act) and aid for ailing State Owned Entities (SOEs) remain further complicated risks to containing expenditure. The country’s debt remains the most significant and fastest growing expense items in the budget.

The fiscal tightrope

Mr Godongwana will need to remain fiscally prudent, containing government debt levels and expenditure, all while continuing to support the Economic Construction and Recovery Plan.

The rand

The USD/ZAR has now formed a bearish reversal from overbought territory at around the R15.50/$ resistance level. In turn we have seen a short term correction of the longer term uptrend. The move below R15.10/$ and R15/$ now see’s R14.85/$ and R14.50/$ as further downside targets from the move.

Traders respecting the longer term uptrend for the USD/ZAR, will not look to short the current move lower, but rather be waiting for a bullish price reversal at one of the aforementioned support levels for long entry. Only on a move below R14.40/$ would we reassess the longer term trend bias to trades on the currency pair.

In summary:

• Finance Minister Enoch Godongwana will deliver his maiden Medium-Term Budget Speech on the 11th of November 2021 at 2pm (local time)
• Mr Godongwana is expected to maintain the fiscal path set by the former Finance Minister Mr Tito Mboweni.
• The goal is to narrow the budget deficit and achieve a surplus by 2024/25
• Government debt is expected to stabilize at 88.9% of GDP by 2025/26 before declining thereafter
• The future of welfare and social grants, government debt, the public sector wage bill and aid for ailing State Owned Entities (SOEs) remain further complicated risks to containing expenditure
• Revenue collections have improved
• Economic growth has improved
• Mr Godongwana will need to remain fiscally prudent, containing government debt levels and expenditure, all while continuing to support the Economic Construction and Recovery Plan