The Medium Term Budget Policy Statement (MTBPS) is expected to reveal an improved budget deficit and debt ratios for the 2022/23 financial year as a result of better than expected personal tax collections, lower levels of refunds and higher commodity prices. However, many of these gains are likely to be absorbed by failing state enterprises, a larger than expected government wage bill and increased demand for social relief grants.
Eskom, for example, will require financial assistance to increase and replace generating capacity, while talks of levies, and uncertainty about future energy regulations, will continue to deter large independent electricity producers from helping to solve the crises. This situation is, unfortunately, the legacy that the power utility leaves after decades of political interference and mismanagement.
Finance minister Enoch Godongwana is expected to outline what debt relief will be provided to Eskom in order to allow the embattled power utility to improve its balance sheet. The debt relief is expected to amount to around R200 billion.
Transnet is also likely to require a cash injection. The state-owned logistics provider’s inefficient and in some cases collapsing infrastructure has been well documented in recent weeks. A lack of investment, combined with dragged out labour action is costing the economy both directly in terms of taxes and lost revenue as well as indirectly by holding an already fragile economy hostage through labour negotiations.
Adding to the economy’s woes are cumbersome and changing regulations which are placing a huge strain on SME’s. This, in turn, is impacting the ability of these businesses to focus on increasing their growth and revenue. At TPN Credit Bureau we are seeing this trend reflected in smaller commercial tenants who are struggling to get up to date with their rental payments. The rental bracket below R10 000 per month had only 66,55% of tenants in good standing in the second quarter of 2022, compared to 77.19% of tenants in good standing in the rental bracket above R50 000 per month.
As the demand for commodities cools and prices lower, and amidst a growing risk of a global recession, markets will be hoping for an indication of responsible spending that grows the economy.
Encouragingly, inflation looks to be abating. Headline annual inflation decreased to 7.5% in September from 7.6% in August. Although this is still early days in the turnaround it will hopefully signal a less aggressive interest rate hike cycle, offering welcome relief to financially constrained consumers that can ill-afford further interest rate hikes.
Higher interest rates and poor economic growth is a significant cause for concern, particularly if this plays out in the form of business closures and further job losses which will impact the ability of tenants to pay rent. What both the economy and the property sector urgently needs from the upcoming MTBPS is the assurance that government has a handle on ballooning government debt, and is spending responsibly in a way that encourages investment and economic growth.