One key gauge of the reception of the annual Medium-Term Budget Policy Statement (MTBPS) and the February Budget for the upcoming government fiscal year is the reaction of the markets.  

On that front, Finance Minister Enoch Godongwana once again pulled a rabbit out of one of his stylish hats, as the rand and domestic bonds both made mild gains in the wake of his speech.

By late Wednesday, the rand was fetching 18.59/dlr compared with about 18.70/dlr shortly before the minister began speaking, while the yield on the benchmark 2030 government bond fell by nine basis points to 10.585%.  

International investors also gave the MTBPS, which provides a broad fiscal outlook for the next three years, a cautious thumbs up, with the government’s sovereign dollar bonds falling by as much as 0.6 cents.

The JSE put in marginal gains on the day but the equities market does not follow the beat of fiscal policy in quite the same way.

“This MTBPS was better than many expected in the market and so there has been some justified relief. The question is if it’s credible,” Peter Attard Montalto of the consultancy Intellidex told Daily Maverick.

Spending cuts, for example, will be a thorny issue, to say the least.

“For 2024/25 and 2025/26, the reductions are R64-billion and R69-billion, respectively. These are based on current revenue projections and do not take into account future revisions to revenue forecast,” the minister said in his speech.

That will be welcomed by the markets and trading agencies, but will be a hard political sell.

“We think that it is unlikely that the government will be able to stick to its expenditure targets, as this has not been achieved in the past. Unaffordable wage demands by public sector workers, rising borrowing costs and a growing need for social support are some of the key factors that underpin our assumptions of higher expenditure growth over the coming years,” Jee-A van der Linde, a senior economist at Oxford Africa Economics, said in a note on the mini budget.

Still, bond investors are giving the National Treasury the benefit of the doubt — at least judging from their early reaction — even though the government is between a rock and a hard place as the fiscal taps run dry.

Read more in Daily Maverick: MTBPS: Government to borrow more money as revenue dries up

“The 2023 MTBPS has demonstrated a deterioration in the fiscal framework due to poor revenue performance amid reduced corporate profitability, particularly in the productive sectors of the economy, and cost-of-living pressures confronting consumers… Nevertheless, the primary fiscal balance is still expected to record a surplus from 2023/24 onward, and gross debt stabilises in 2025/26, albeit at a higher level,” FNB said in its review. 

The bottom line is that markets had braced for an even grimmer statement, so the initial reaction was warily positive. But the outlook remains woeful and if it worsens — or improves — that will be reflected in the longer-term performance of the rand, bonds and stock market. DM