RMB chief economist, Isaah Mhlanga, said that while the Medium-Term Budget Policy Statement (MTBPS) was met with indifference by markets, the credibility of the government’s capacity to execute its plans has been questioned, according to BusinessTech.
While local economists called the MTBPS as ‘credible as can be, under the circumstances’, bond markets did not respond well to the budget. Even the rand’s recent gains against the US dollar probably had little to do with the outcome.
Before the MTBPS, analysts broadly projected a fiscal slippage from the 3.9% deficit for 2023, as projected in February, to a deficit of 5.1% or 5.2%. The MTBPS, however, projected a main budget fiscal deficit of 4.7% of GDP for 2023.
Mhlanga says that while this was better than expected, it was likely an intentional strategy by the Treasury to come in better than expectations. This has negatively affected the budget’s credibility.
Mhlanga noted that between the February budget and the MTBPS, SA bond yields saw a rise, reflecting global tightening of financial conditions and South Africa’s worsening fiscal position.
After the MTBPS, however, bond yields declined, but only to the extent that reflected the moderation in global financing conditions. Mhlanga said that ‘SA bond markets have not responded positively to the MTBPS, given that the decline in domestic bond yields coincided with the decline in US long-term bond yields’.
Mhlanga said that the performance of the bond markets, CDS markets and currency markets post the MTBPS was driven by global factors – particularly the decision of the US Fed to keep rates unchanged and the softening of US labour market data.