Johannesburg - In less than two weeks Finance Minister Malusi Gigaba faces the sternest test of his tenure when he presents his first medium-term budget policy statement (MTBPS).
The policy statement sets out the government’s three-year fiscal plans including: forecasts for growth; expected tax revenue; outlook for taxes; and the budget deficit.
It is vital that the coming policy statement – colloquially known as the mini budget – establishes Gigaba’s credibility, which has been lacking so far. His ability to chart a course for public finances that will ensure that the country’s debt stabilises will be tested. The finance minister also needs to make it clear that he has a plan to grow the economy and create more jobs.
Nedbank economist Isaac Matshego said Gigaba had yet to provide any clear direction and he has “still got a lot to prove”.
Gigaba’s plans, as outlined in the MTBPS, should give direction to all of South Africa’s 56 million people – particularly the outlook for taxes, social grants, growth and jobs.
The local business sector in particular will be listening for what the future entails and can be expected from him and National Treasury.
The major credit rating agencies – S&P Global Ratings, Moody’s Investors Service and Fitch Ratings – will all be keenly watching Gigaba’s mini budget for an idea on what course he and his National Treasury team have charted.
When he was appointed in March, S&P and Fitch both cut the country to “junk” investment status, citing the potential for a change in fiscal course.
Nedbank’s Matshego said the MTBPS was unlikely to affect the government’s credit rating unless it was a “shocker”, as agencies were likely to only move their ratings next year, following the ANC’s election conference in December.
These rating agencies will be eyeing the mini budget to see whether the promises of the February 2017 budget speech of fiscal consolidation to reduce the budget deficit and contain the growth of public debt were met.
Since his tenure commenced shortly before midnight on March 31, Gigaba has been plagued by suspicions about his involvement with the Gupta family and state capture. These particular concerns were sparked by his relationship with the Public Investment Corporation (PIC) and his ability to influence how PIC funds are allocated, such as bailing out SAA and other indebted state-owned enterprises.
Much of this concern has come from unions representing government employees, including nurses; South African National Defence Force staff; police officers; and other civil servants.
The PIC manages R1.928 trillion in funds, roughly 95% of which is on behalf of the Government Employees’ Pension Fund and the Unemployment Insurance Fund.
Gigaba’s handling of SAA has proven to be a particularly sore issue after he directed R5.2 million in bailouts to SAA in short seven month tenure. These bailouts have served to prevent the bankrupt airline from defaulting on its government guaranteed debt. Gigaba has failed to show that he’s placed SAA on the path to recovery as he continues to bail out SAA without stating any obligations or conditions the airway must meet.
Last month Moody’s analyst Zuzana Brixiova said it was vital that any bailout of SAA should have conditions attached to it.
There are also fears that Gigaba is setting up a parallel administration at the Treasury and moving the budgeting unit closer to the presidency.
Gigaba has yet to establish credibility with investors or the public about his ability to manage the country’s finances amid fears that the country’s flagging growth, significant revenue short falls and rising debt will ultimately force the country to seek an International Monetary Fund bailout.
His 14-point plan didn’t garner much support from any quarter.
Gigaba’s arrival at the National Treasury – together with that of Deputy Finance Minister Sfiso Buthelezi – saw respected National Treasury director-general Lungisa Fuzile exit in May.
Fuzile was replaced by long-term National Treasury official Dondo Mogajane. Mogajane is yet to clearly mark out a public reputation for himself.
Gigaba and Buthelezi replaced then finance minister Pravin Gordhan and deputy finance minister Mcendisi Jonas after they were axed during a major Cabinet reshuffle by President Jacob Zuma. The country is still recovering from the resulting blow to the economy.
Earlier this year, Reserve Bank governor Lesetja Kganyago told City Press at the World Economic Forum in Durban that Gigaba “will get a chance to show his mettle when he delivers his medium-term budget in October”.
“A life of a finance minister is measured by how many budgets you have tabled. The MTBPS is coming in October.
“The minister will be able to demonstrate in that statement that he is not only able to run Treasury, but also to get the entire government behind responsible and responsive fiscal policy.
“National Treasury has served the country with distinction.
“With such an ‘A’ team, he dare not fail. If he continues with that team, he will succeed.”
Whether Gigaba measures up to Kganyago’s expectations is yet to be seen.