All eyes on mini-budget amid growth woes
Claire Bisseker
THE economic highlight of the week will be the minibudget on Wednesday. All eyes are watching to see whether Finance Minister Nhlanhla Nene responds strongly enough to SA’s deteriorating economic climate.
Earlier on the same day, Statistics SA will release September consumer inflation data and August retail sales data.
BNP Paribas expects the Consumer Price Index to have tracked sideways at 4.6% year on year in September since the 5.3% monthon-month fall in fuel prices was offset by climbing food prices, among other things.
Real retail sales growth for August is expected to have ticked up modestly to 3.5% year on year (previously 3.3%), partly because of the boost to spending from public sector wage hikes, which kicked in during the month.
These routine data releases will be overshadowed by the minibudget, which provides a mid-year update of government’s fiscal deficit and debt projections, and sets out the fiscal framework for revenue and spending over the next three years.
Economists have warned that SA stands at a critical juncture: if Mr Nene allows further significant fiscal slippage, SA will be penalised by the rating agencies.
“It is imperative that the Treasury uses the medium-term budget policy statement to reassure the market of its commitment to fiscal sustainability,” said Investec Asset Management economist and strategist Nazmeera Moola.
The Treasury’s success in holding expenditure to a ceiling over the past few years, and complementing this with tax hikes in the current budget, has helped ease some rating agencies’ concerns.
However, the prospect of low, stagnant growth for the next few years raises fresh concerns that revenue will undershoot and gross loan debt will fail to stabilise below 50% of the gross domestic product (GDP), as promised.
Thanks mainly to this year’s tax increases, economists are not expecting the deficit to blow out in the current year above the 3.9% budgeted for. However, the outer years of the medium-term framework look worrying should growth continue to disappoint.
Citibank estimates that if no new tax initiatives are introduced and the expenditure ceiling is maintained, the 2016-17 consolidated budget deficit will come in closer to -3.2% of GDP than the Treasury’s target of -2.6%.
The 2017-18 deficit will be - 3.0% of GDP compared to the target of -2.5%. This represents an additional R25.3bn and R23.6bn being added to the deficit in each respective year.
The situation calls for further belt-tightening. An obvious solution would be a 2% VAT increase since it would add roughly R25bnR30bn to revenue a year, says Citi economist Gina Schoeman. However, she worries that the government could seek to delay this until after next year’s municipal elections or until growth firms.
Rounding off the week will be the annual Cape Town conference of the Bureau for Economic Research, at which Reserve Bank Governor Lesetja Kganyago will deliver an address on monetary policy and exchange rates.