Major debt relief for Eskom eclipses the budget, but difficult budgeting trade-offs lie ahead to maintain fiscal restraint.

There was a broadly positive response from fixed income and currency markets, with government pledging significant financial support to energy utility Eskom. Given no tax implications (no fuel levy increase and only inflation-related increases in sin taxes), full compensation for bracket creep (R15.7 billion) and inflation-related increases in grants, the outcome for South African (SA) equities should be largely favourable. Although Treasury stuck to its guns on fiscal consolidation and adhered to a prudent approach to spending, market participants remain wary of the tough fiscal decisions that must be taken to further support other state entities, to address the cost-of-living crisis that civil servants face and to increase government’s financial reach to the most vulnerable.

• Treasury’s medium-term economic forecasts look reasonable. Its expected average economic growth rate of 1.4% between 2023 and 2025 is broadly in line with our own expectation and that of the Reuters median consensus estimate of 1.6% and 1.4%, respectively. Treasury’s projection on inflation of 5% over the same period further broadly matches our expectation
of 5.1% (Reuters consensus: 5%).