Supplementary Budget 2020

Why South Africans should care about the mini budget

Johannesburg – Finance Minister Malusi Gigaba’s mini budget is an honest reflection of the country’s fiscal position, and it appears things will become tougher for the man on the street, according to an economist.

Speaking to Fin24, Old Mutual economist Tinyiko Ngwenya explained that Gigaba has put the out the “facts” of the fiscal crisis.

National Treasury revised its growth projection from 1.3% down to 0.7% for 2017. The debt burden is expected to grow, with the deficit being revised from 3.1% of GDP to 4.3%. The revenue shortfall of R50.8bn is higher than market expectations of R40bn, she explained.

“We have low growth, we have a situation where we are spending more than we can afford to,” she said. These facts are out there for investors to consider, and they will also be looking out for the next moves by ratings agencies.

Economists are of the view that a downgrade is imminent, and this would impact the strength of the rand and government bonds.

Fitch Ratings released a statement expressing disappointment with the mini budget. Fitch downgraded South Africa’s local and foreign credit rating at junk status, with a negative outlook, following the Cabinet reshuffle in March in which former finance minister Pravin Gordhan was sacked.

Gigaba’s mini budget confirmed fears that policy making would shift from a focus on fiscal consolidation, the ratings agency said. The mini budget also forecasts a “sharp fall” in fiscal revenue but has no measures to contain the impact on deficits and debt.

Several analysts have criticised the mini budget for its lack of solutions.

Alexander Forbes Investments executive chief economist Lesiba Mothata also raised concerns about a lack of continuity in the mini budget, which traditionally sets out the direction for the national budget in February.

Ngwenya said the mini budget has implications for interest rate decisions by the Reserve Bank’s monetary policy committee.

The bank lowered rates in July, and at the time said further cuts would depend on the stability of the rand and lower inflation.

But since July the rand has weakened considerably, said Ngwenya. “I do not think they [the Reserve Bank] are going to cut anytime soon.

“For the man on the street it is very important for them to take a keen interest of what is happening in National Treasury,” she said. Investors are not the only stakeholders.

WATCH: 'This budget was bad!' - economist


“We as citizens are the most crucial stakeholders. We contribute in the form of tax. We need to know what is happening in terms of using taxes to fund the national budget,” she explained.

“It is very important for us to take interest and understand what is happening and what we are doing, and find a way to protect that interest.”

Previously, we expected low inflation and interest cuts that would bring some relief to consumers, but that is no longer the case, said Ngwenya. “It seems it will be tougher going forward… it is important to understand that the environment will be difficult.”

* Visit our Mini Budget Special Issue for all the news, views and analysis.


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