Budget 2022

Mboweni: Mini budget tabled in time of slow economic growth


The government is betting on President Cyril Ramaphosa’s economic stimulus plan and renewed investor confidence in SA to overcome weak economic growth, which is expected to slow to just 0.7% in 2018. 

While the National Development Plan – the state’s long-term blueprint for growing the economy and cutting unemployment – has a goal of 5.4% annual gross domestic product (GDP) growth, SA’s GDP growth has averaged just 1.8% over the past decade. 

Speaking to the media ahead of his address on Wednesday, new Finance Minister Tito Mboweni said the mini budget was being tabled in a time of "slow economic growth". 

"By definition, that leads to lower revenue outcomes," he said. 

SA’s economy would need to grow roughly eight times as fast as it is expanding at the moment to reach the NDP’s goal.  

"The economy has not performed as expected," states the medium-term budget policy statement released on Wednesday.

The document - which updates the spending plans, projected tax revenues and economic growth projections made in the main 2018 Budget – notes that, when Budget 2018 was tabled in February there was a “sense of optimism that confidence and investment would recover on the strength of improved political certainty".

Since then SA has slipped into a technical recession and the International Monetary Fund (IMF) and World Bank have downgraded the GDP growth rate to under 1%. 

The mini budget notes that mining and agriculture have both contracted, while per-capita GDP continues to decline as the economy grows more slowly than expected. Unemployment, at over 27%, is among the highest in the world. 

Betting on Ramaphosa

The mini budget states that President Cyril Ramaphosa’s economic stimulus plan announced in September, as well as the October Jobs Summit as well as the upcoming Investment Summit show that government is serious about bolstering economic growth and investor confidence. 

Shortly after being elected president at the start of the year, Ramaphosa announced that he would seek to attract $100bn in new investment to SA over the next five years by, in part, giving investors policy certainty. 

The mini budget states that SA has been suffering from "anaemic investment growth" due, in part, to "prolonged policy uncertainty". Roughly $34bn has already been pledged at a series of high-profile deals. 

"Policy certainty in areas such as mining and energy is being restored, and the governance of state-owned companies and entities such as Eskom, Transnet and the SA Revenue Service (SARS) is being strengthened," states the document. 

Risks to growth 

National Treasury predicts that the economy growth will grow 1.7% in 2019 and 2.1% in 2020. Risks to this increase include rising international trade tensions, risk aversion in emerging market economies, the falling rand and higher borrowing costs. 

On the local front there still exists some policy uncertainty, state-owned enterprises are in a precarious financial position, there is a risk of higher inflation linked to the falling rand and, lastly, "higher fuel and electricity prices". 

The policy statement notes the outlook for sovereign ratings remains stable, but added that a downgrade would lead to higher risk premiums and capital outflows. 

Of the three major ratings agencies only Moody’s still has SA’s sovereign debt rated at above investment grade. While SA is expected to grow at 0.7% in 2018, the global economy is projected to expand by 3.7%. 

* Visit Fin24's 2018 mini budget hub for all the news, views and analysis.

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