(Bloomberg) — South African Finance Minister Tito Mboweni will have to show commitment to curb spending and rein in debt in this week’s budget, while finding ways to revive an economy that probably contracted the most in nine decades last year.
Mboweni will present the government’s spending framework for the next three years on Wednesday, after the coronavirus pandemic ravaged Africa’s most-industrialized economy, increasing the strain on already stretched public finances and even forcing the ruling African National Congress to end its long-held resistance to borrowing from the International Monetary Fund.
While revenue collection for this fiscal year may overshoot the Treasury’s October estimate, the pandemic has raised pressure on state coffers. The government won’t reach its goal of achieving a primary budget surplus by 2025-26, according to sixty-five percent of economists surveyed by Bloomberg. The targeted positive balance is part of the active scenario of managing public finances, which include debt that’s projected to peak at 95.3% of gross domestic product in the 2026 fiscal year.
“In the absence of meaningful economic growth, South Africa’s fiscal strain will remain a reality for years to come,” said Elize Kruger, an independent economist.
The consolidated budget deficit is forecast reach 13.9% of GDP this fiscal year, according to the median estimate of 22 economists in a Bloomberg survey. That’s less than the Treasury’s October estimate, mainly due to better-than-expected tax collections rather than an improvement in the economic outlook. For 2021-22 the shortfall is now seen at 9.7% of GDP.
Read more: South Africa’s Upside Tax Surprise May Help Pay For Vaccines
What Bloomberg Economics Says:
“The biggest risk will remain the Treasury’s ability to implement the proposed wage savings of over 300 billion rand. The labor court vindicated the decision to freeze public-sector salaries last year. However, the decision has yet to be affirmed by the country’s highest court.
— Boingotlo Gasealahwe, Africa economist
For the full report, click here
While revenue is still expected to fall short of the 2020 budget forecasts, Mboweni no longer faces as much pressure to raise taxes in an economy the IMF sees expanding only 2.8% this year and 1.4% in 2022. The Treasury said last year that it plans to raise an additional 40 billion rand in revenue in the medium term, comprising 5 billion rand in 2021-22, 10 billion rand in 2022-23 and in 2023-24 and 15 billion rand in 2024-25.
Tax Increases
Of the economists surveyed, 70% expect Mboweni to announce tax increases. Those will probably come from excise duties on alcohol and tobacco products, fuel levies and by not adjusting tax brackets for inflation, rather than new measures such as a wealth or solidarity tax because that could further throttle the economy.
The “dire outlook necessitates a carefully calculated approach to governmental revenue generation,” Charles de Wet, a tax executive ENSAfrica, said in a note. “The minister is expected to prioritize economic growth and commercial stimulation during his budget speech by exercising restraint regarding taxation increases.”
The Treasury could reduce its weekly bond issuance by around 2 billion rand to show that it is serious about reducing the deficit and slowing debt accumulation, Nazmeera Moola and Adam Furlan of asset manager Ninety One Ltd. said in a note.
“Given the current large government cash balances, a continuation of the high levels of issuance would raise serious doubts about government’s commitment to further consolidation,” they said.
Read more: South Africa Treasury Likely To Maintain 2020-21 Bond-Sale Level
Officials including Mboweni have repeatedly warned that the country faces a sovereign debt crisis unless is takes urgent action. However, plans to reduce expenditure by about 300 billion rand over the next three fiscal years, mainly by paring a salary bill that’s surged by 51% since 2008, have drawn criticism from politically influential labor groups, civil society organizations and some opposition lawmakers.
Of 21 economists in a Bloomberg survey, 16 said the projected spending cuts will have to be revised down. Still, the Treasury may not change its spending outlook yet because there is no resolution on the wage-bill issue, said Peter Attard Montalto, head of capital markets research at Intellidex.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
