MNCs selling to the public sector should continue to plan for muted demand growth and tough pricing negotiations
MNCs should expect muted demand conditions and tough pricing negotiations when selling to most public sector customers for the foreseeable future. However, new opportunities will continue to emerge in functions receiving additional funding through 2023, including education, healthcare, law enforcement, and infrastructure investment. Meanwhile, all MNCs selling to the public sector should position their offerings as helping customers achieve their budget goals by providing cost savings to customers. MNC should also train salespeople to position offerings as helping government departments achieve their non-financial goals, such as expanding access to public services within deprived communities.
- The Medium Term Budget Speech (MTBS) on October 26, 2022 revealed a revenue windfall driven by high global commodity prices, allowing the government to increase its 2022/2023 revenue projection by ZAR 83.5 billion, to ZAR 1.6 trillion.
- Improved fiscal projections in the MTBS prompted the government to commit to introducing no new taxes, nor raising existing tax rates for the foreseeable future.
- The government has also offered more generous budget allocations for priority functions, including healthcare, education, law enforcement, and infrastructure development.
- The relief-of-distress grant of ZAR 350 per month for low-income households has been extended for another year, but civil wage increases have been capped at 3%, less than half the projected inflation rate through 2023.
Despite the mildly positive revenue outturn that is forecast to continue in 2023, the government has limited fiscal maneuverability because of rising debt servicing costs and its commitment to achieving a primary budget surplus by 2024. Although the primary budget deficit (before debt servicing costs are accounted for) will shrink to 0.2% of GDP during the 2022/2023 fiscal year, the main budget deficit (including debt servicing costs) is forecast to rise to 4.9% of GDP, and public debt will peak at over 71% of GDP. Consequently, the government will utilize its revenue windfall to shrink public debt and slow the pace of spending cuts in real terms. However, the government may acquiesce to immense political pressure from powerful trade unions by revising its civil service wage deal upward closer to the inflation rate. Meanwhile, high-income households will face less pressure to cut nonessential purchases given the absence of tax increases, and low-income households will benefit from the extension of the COVID-19 social-relief-of-distress grant of ZAR 350 per month for another fiscal year.
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