24 Oct 2017

Gigaba stalling on tough decisions until the ANC elective conference

Tertia Jacobs

Investec Treasury Economist

The Medium Term Budget Policy Statement announced by Finance Minister Malusi Gigaba has not taken any steps to improve business confidence. "In fact, the trade-off between growth and an increase in debt has become all the more stark," says Investec Treasury Economist Tertia Jacobs in this podcast.

Gigaba stalling on tough decisions

ANC elective conference will determine the path of South Africa's politics going forward.

Use the time codes below to jump to topics of interest

 

01:07: The Finance Minister is not in a position to take any tough decisions until the outcome of the ANC Elective Conference in December is determined.

03:15: The budget deficit and revenue shortfall.

06:20: Possible credit downgrades due to the deterioration in South Africa’s debt ratios.

R50 bn
Revenue shortfall
4.3%
Expected budget deficit
52%
South Africa's debt to GDP ratio

In today's medium-term budget speech, National Treasury announced a revenue shortfall of R50 billion. Tertia Jacobs says that while the market was expecting a revenue shortfall of between R30-60 billion and a budget deficit increase, it was also looking to the Finance Minister to announce measures that would offset these figures - like tax increases or expenditure cuts.

 

However Gigaba didn't address any of these issues, a move that Tertia believes is due to the fact that the "new Minister of Finance has not been in a position to make any tough decisions" until the outcome of the ANC elective conference in December is announced.

 

"This budget has not taken any steps to improve business confidence. In fact the trade-off between growth and an increase in debt has become all the more stark."
SAA Bailout

In the policy statement, the bailout of SAA has been factored into expenditure, explains Tertia. "What they indicated to us earlier in the year was that any bailout to SAA would be neutral for the budget deficit. So they would sell another asset to pay for SAA, for example, Telkom."

 

But as Gigaba didn't detail which assets will be sold, the SAA bailout "will be financed by tax collections, contributing to the wider budget deficit".

Tertia Jacobs
Tertia Jacobs, Investec Treasury Economist

Deterioration in South Africa’s debt ratios do signal increased probability of downgrades over the next two months.

ANC elective conference will be a turning point in South Africa's economic policies

“The MTBPS suggests that there are no clear growth strategies. That is a consequence of the uncertainty about the outcome of the elective conference," says Tertia.

 

Gigaba gave no clear guidance in his speech about how additional revenues could be raised or how state-owned enterprises like SAA, the Post Office and SABC, will be financed.

 

"Essentially what this budget is telling us is that everything is on hold until a new ANC president is elected."

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