What a week for the economy

The festive season with its many expenses is looming. So you’d be forgiven for focusing on your wallet and ignoring broader economic news – but don’t worry, we’ve got your back. First, a look at finance minister Enoch Godongwana’s last maiden medium-term budget policy statement (MTBPS) last week. Then we’ll talk you through this week’s inflation and interest rate news.

  1. MTBPS aftermath

We were looking for differences in policy between Godongwana and his predecessor, Tito Mboweni; the new minister said the only difference was that he had “better shoes” than Mboweni. It’s not a sartorial slight: he means that he has better monetary support, as TimesLive reports. Godongwana has R120bn more revenue available to him than Mboweni did for the February budget, thanks to a glorious commodity boom and higher global economic growth. This revenue could be short-lived, but it does help Treasury to carry out its responsibilities.

  • One of these is the R350 social relief of distress grant, introduced early in the pandemic to provide support to the vulnerable. It was briefly cancelled, then reintroduced after July’s unrest. Some analysts expected Godongwana to extend the grant beyond March 2022 but he kicked the can down the road to the big budget speech in February next year. Around 27.8 million people – 46% of our population – are receiving this grant, which is another tier in a multi-faceted social support system. SA’s grant system offers crucial support to millions, but it’s at a cost that rose to R1.1 trillion in 2021/22. There’s pressure to cut government spending. Godongwana proposed restructuring the system: “We’ve got to say, which of these are critical? If I’m providing a basic income grant, is there need for a child support?”. Tough balancing act. Expect his 2022 Budget to hold more answers.
  • The good news is that the government has ACTUALLY stuck to its promise to cut spending – albeit slightly –  and where it does spend, to do it more on investments that will reap us more rewards later.  General government spending is projected to contract for three consecutive years thanks to real growth in recent years. TimesLive reports that this shows the government is sticking to the financial framework tabled in February 2021’s budget. Government is also planning on spending more on fixed investments, especially for economic regulation and infrastructure. This will go down very well with investors. 

It was a solid first MTBPS for Godongwana. He’s a capable finance minister and has the clout to push through many reforms. If it’s done right and in good time, our economy (and our purses!) will reap the benefits. 

  1. Inflation and interest rate

Inflation indicates whether the price of food and beverages, among other things, has risen. A number of factors, like global prices and the price of fuel, determine the inflation rate, so economists were expecting inflation to rise given last week’s fuel hike. Inflation remained steady at 5% in October, but things could shift a little after the South African Reserve Bank’s decision today to hike the interest rate to 3.75% from 3.5%. 

Meanwhile, the local currency has not recorded much change, hovering around R15.40 – R15.65 to the US dollar over the week. This is something to keep an eye on, especially if you’re planning an overseas trip. The stronger the rand, the less you’ll fork out for an international sojourn.

This article appeared as part of The Wrap, 18 November 2021. Sign up to receive our weekly updates.