Gigaba’s bad news budget

2017-10-26 14:10
Finance Minister Malusi Gigaba (second from left) and officials walk to Parliament on Wednesday where he delivered his first Medium Term Budget Policy Statement, which generally painted a bleak picture of the country’s economic prospects.

Finance Minister Malusi Gigaba (second from left) and officials walk to Parliament on Wednesday where he delivered his first Medium Term Budget Policy Statement, which generally painted a bleak picture of the country’s economic prospects. (Jaco Marais)

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Finance Minister Malusi Gigaba on Wednesday revised economic growth downwards to 0,7% from 1,3%, and said the government will likely face a R50,8 billion shortfall in taxes this year.

Painting a bleak picture of the government’s financial position in his first Medium Term Budget Policy Statement (MTBPS), he said the budget deficit — how much government will spend in relation to its expected income — will widen to 4,23% of GDP in 2017/18, against a previous target of 3,1%.

Analysts generally agreed that Gigaba’s first MTBPS would do little to stave off further sovereign credit rating downgrades before the end of the year or restore business confidence.

“Minister Gigaba’s speech will do little to instill the confidence South African business so desperately needs ... the market was hoping for a rallying cry supported by a meaningful and tangible plan to address over-indebted consumers and unsupported businesses,” said Retail Capital CEO Karl Westvig.

Gigaba outlined a range of measures to help improve the government’s financial position, including selling the state shareholding in Telkom and plans to introduce an equity partner in the loss-making South African Airways.

He said he will announce other initiatives to increase government revenue in the February 2018 National Budget (which may or may not include increased taxes), as well as further initiatives to cut government spending. National Treasury also plans to make it more difficult for loss-making state-owned enterprises (SOEs) to continually seek bailouts from central government, said Gigaba.

His MTBPS speech was preceded by an Economic Freedom Front walkout in Parliament after the party accused him of instigating the Gupta family’s alleged financial capture of state resources.

Gigaba, in a frank admission of the difficulty facing the cash-strapped government, said its “short-term options to reverse this situation are limited”.

“Given per capita incomes are falling, the economic impact of further expenditure cuts or tax hikes could be counter-productive,” he said.

“At the same time, government is acutely aware of the dangers of unchecked debt accumulation. By 2020/21, nearly 15% of main budget revenue will be spent servicing debt,” Gigaba said.

South Africa’s economy is stagnating even though the drought has ended in most parts of the country, agriculture has had a bumper year, load-shedding is largely a thing of the past, labour unrest has moderated, inflation is heading downwards, and commodity prices have recovered somewhat.

Many analysts expect the country to face further sovereign credit rating downgrades before the end of the year, because the MTBPS did not go far enough to restore business confidence and because the rating agencies had warned the government against further increases in borrowing.

Alexander Forbes Investments Executive Chief Economist Lesiba Mothata said “this MTBPS has increased the likelihood of additional credit rating downgrades before the year end”.

He added that the country’s institutional and financial framework, and cheap currency, should enable it to weather the storm, and in any case, “it can be argued that the markets, for some time now, have begun pricing in an outcome where South Africa is assigned a credit quality rating of non-investment grade in local currency”.

“Given the current slow economic growth highlighted by the minister, coupled with the high levels of political uncertainty, the minister’s budget presentation has not painted a picture for which global investors would want to rush to buy into,” Grant Thornton partner Yugen Pillay said in a statement.


Read more on:    pietermaritzburg  |  budget speech

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