Difficult backdrop as Tito Mboweni delivers his first half-term fiscal report

24 Oct 2018

Patrick Lawlor

Editor

Mboweni’s moment – what to expect from the new Finance Minister's Medium Term Budget Policy Statement.

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What will Minister Mboweni do?

David Gracey and Tertia Jacobs discuss the challenges facing the new Finance Minister Tito Mboweni in his maiden half term fiscal statement.
South Africa also faces some important domestic and global challenges that could make things difficult for President Cyril Ramaphosa and Mboweni.
 
What can we expect from the MTBPS? Tertia highlights that because of the weakness in the economy, National Treasury will probably revise its macroeconomic forecasts down, meaning we are likely to see an undershoot on the revenue side.
 
Rating agencies may well tolerate this, provided they see signs of fiscal consolidation and that there is an adherence to National Treasury’s expenditure ceiling. This requires efficient spending by government departments and state-owned enterprises (SOEs).
 
David highlights the importance of rectifying the dysfunctional SOEs as an important step in tackling South Africa’s economic woes and winning over the rating agencies. Tertia adds that the SOEs play an important role in infrastructure development, which in turn can spur the growth South Africa needs. SOEs have started to restructure and new boards brought in, but what the SOEs really need is working capital.
 
To this end, President Cyril Ramaphosa has announced a new infrastructure fund. “But what we really need is the ‘crowding in’ of the private sector to mobilise the capital that is needed,” Tertia says.

 
 
Tertia Jacobs
“You don’t turn a ship around quickly. What’s important is to create a stable policy environment and remove some of the blockages to growth.”

Tertia Jacobs, Treasury Economist, Investec Corporate & Institutional Banking

Ramaphosa also recently announced a stimulus package to attempt to get the economy going. David questions whether this will be enough to jump-start the economy, but Tertia says what’s more important is how this feeds into the longer-term plan. “You don’t turn a ship around quickly,” she argues, “What’s important is to create a stable policy environment and remove some of the blockages to growth.”

Tertia points to some positives in recent times, such as the signing off of the Mining Charter and the decision to auction off some of South Africa’s telecomms spectrum. “This will hopefully make data cheaper, which will be a major benefit for lower income earners.”

Unfortunately, the global environment may not be conducive. Tertia points out that South Africa never really benefited from the last few years of very low interest rates in the developed world and a rise in global trade. South Africa now finds itself at a point when both of these scenarios are starting to unwind – through trade wars and the unwinding of quantitative easing (QE) policies.

Stimulus may come in the form of Chinese infrastructure spending – but the concern is that
China is already highly leveraged, leaving little room to use debt to drive new expenditure.
David says he remains worried about sovereign debt. One of the central pillars of quantitative easing (QE) was the purchase of sovereign debt by the world’s leading central banks.  Withdrawal from QE could thus create problems.

About the author

Patrick Lawlor

Patrick Lawlor

Editor

Patrick writes and edits content for Investec Wealth & Investment, and Corporate and Institutional Banking, including editing the Daily View, Monthly View and One Magazine - an online publication for Investec's Wealth clients. Patrick was a financial journalist for many years for publications such as Financial Mail, Finweek and Business Report. He holds a BA and a PDM (Bus.Admin.) both from Wits University.

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