Analysts laud policy, warn it may be too little,
THE FISCUS consolidation message delivered by Finance Minister Pravin Gordhan yesterday was largely well received by commentators and pundits.
Economists and business bodies said the medium-term budget policy statement (MTBPS) had hit the right notes in trying to reduce government debt that had gone above the R2 trillion mark.
Gordhan stressed the need to grow a more inclusive economy that accommodated everyone.
FNB chief economist Sizwe Nxedlana said the MTBPS contained positive and some disappointing news.
“The positive aspects of it are that the country’s belt-tightening continues, government spending in previous years had been greater than government’s income – we need to stabilise debt,” Nxedlana said. “What is bad is that the budget deficit is going to narrow at a slower pace that what was previously announced and government debt is going to stabilise at a higher level than what was previously announced, and the reading for that is that the economy under-performs.”
Econometrix chief economist Azar Jammine said while Gordhan could have sought to appease ratings agencies, he believed that the minister could have also missed the mark.
“The minister tried to maintain fiscal consolidation in the hope that the ratings agencies might still give us a chance, however I don’t think they will necessarily be convinced – too much water has gone under the bridge already. What was encouraging was that the growth forecast he gave for next year was more upbeat than other forecasts that have been made recently,” Jammine said
Roger Baxter, the chief executive of the Chamber of Mines, said the speech tried to send out a message of a resilient economy to investors.
“The chamber welcomes the approach of measured and balanced fiscal consolidation and, in parallel, the focus on promoting investor and business confidence and investment-led growth and inclusivity. Given the fragile economy and the mining sector in economic crisis, the source of any additional tax burden will need to be carefully considered.”
SA Chamber of Commerce and Industry chief executive Alan Mukoki said the revised economic growth forecast was concerning. “We note with concern the revised growth target of 0.5 percent for the fiscal year of 2016. The 0.7 percent growth predicted for the 2017 fiscal year is encouraging, albeit still significantly low given the economic, political and social challenges that we face. We wish to encourage the government and its relevant departments to scale up their execution capabilities in implementing the projects announced in the MTBPS.”
Old Mutual economist Johann Els said the Treasury’s efforts to keep government spending in check were positive.
“The impact of slower growth on tax revenues is substantial, but fortunately the Treasury has managed to keep spending under control. Although this continues the task of fiscal consolidation, the goalposts have again been shifted. The bottom line is that this is a relatively solid MTBPS given the pressures facing the Treasury.
“A tighter stance might have been too damaging to the economy. It remains to be seen how this will influence the country’s ratings. Ratings agencies do not only look at the budget, but also economic growth. S&P Global Ratings is also waiting for announcements regarding a national minimum wage and a secret strike ballot.”
Nedbank economist Matshego Isaacs said the minister had shown the government’s commitment to keep the increased debt stock under control. “I am glad that the government is also finding ways to fund our social needs, particularly higher education. The minister played a big part for South African revenues as a strong case for investment grade.”
Johannesburg Chamber of Commerce and Industry’s Ellis Mnyandu said the reduced growth estimates were reflective of an economy that had stagnated against rising demands on the fiscus.
“The key message from this budget policy statement is therefore one of caution. The projected shortfall of R23 billion in tax revenue this year, coupled with economic growth that is subpar, and the likelihood of tax increases in next year’s budget, underscores the difficulty facing the country, especially as policymakers try to avert a sovereign credit rating downgrade. Without a clearly discernable path towards a robust economy there is likely to be caution all around, and growth will be restrained even further.”
Cosatu parliamentary co-ordinator Matthew Parks said while the federation acknowledged many of the positive aspects in the statement, measures announced were not enough to deal with the country’s unemployment crisis.
“We do not see it being sufficient to stimulate economic growth to the position where the economy can create the 100 000 new jobs that are needed monthly,” Parks said.
“We remain concerned that the demands of rating agencies reign supreme over those of 8 million unemployed South Africans.”