Nothing too dramatic in Gordhan’s budget, says economist

2010-02-17 15:09

Finance Minister Pravin Gordhan’s first budget since assuming

office came in broadly as expected, Normura International emerging markets

economist Peter Montalto said on Wednesday.

“There was nothing too dramatic, save for mining royalties.

However, the industrial policy announcement on Thursday may well be more

interesting,” Montalto said in a statement.

“The mining royalty bill is coming in from March?.?.?.?this is

important for local equities?.?.?.?it will be negative and further erodes SA’s

competitiveness in global mining.”

However, Montalto said this was an important revenue generating


He said banks would now be able to expand foreign exposure to 25

percent of liabilities.

“This is all they are doing on rand policy and it is rand

negative,” he said.

Montalto said the rise in sin taxes and other duties was as


“There was no mention of mandate change as regards the Reserve Bank


“However, Gordhan did stress that the SARB needs to consider a

whole range of impacts on the economy and how they affect inflation.”

Montalto felt that Gordhan did not want to “commit to much too

early on.”

This did not affect his view that a mandate change by the end of

the year was on the way.

He said the market might well take Wednesday’s lack of any

commitment to a process for change as a signal that the change is less


“That said, both Gordhan and SARB Governor Gill Marcus are

stressing that inflation will always be a priority, so this could just be

pre-change strategy.” Montalto said that the deficit over the medium-term was

broadly unchanged – down to 4 percent by 2012.

“We think they are still underestimating the deficit, however, and

have shifted the 2009/10 forecast to -7.3 percent. We think it will be more like

-8.1 percent,” he said.

Two issues Montalto had with the budget was that it did not take

any account of new costly legislation, including the new industrial policy out

on Thursday, or heath insurance, which was on its way.

“Nor does it make any further efficiency savings which is

disappointing,” he said.

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