Financial Mail - Investors Monthly - - Contents - with Ntsakisi Maswan­ganyi

Fi­nance min­is­ter Nh­lanhla Nene’s medium-term bud­get pol­icy state­ment held no sur­prises. The main ques­tion now is whether it will have been enough to con­vince rat­ing agen­cies not to down­grade. Fitch al­ready has a neg­a­tive out­look on SA’s sov­er­eign credit rat­ing.

The sharp down­ward re­vi­sions to eco­nomic growth out­looks, not only by trea­sury but by other in­sti­tu­tions as well, will not sit well with the rat­ing agen­cies, whose rat­ings mat­ter for SA’s bor­row­ing costs.

De­spite Nene low­er­ing the eco­nomic growth out­look for Africa’s sec­ond-big­gest econ­omy for this year to 1,5% from 2% in Fe­bru­ary, to 1,7% from 2,4% for next year, and to 2,6% from 3% for 2017, some econ­o­mists still think rev­enue tar­gets will be met.

Ro­bust per­sonal in­come tax and value added tax rev­enue in the year to date, and de­layed cuts in un­em­ploy­ment con­tri­bu­tions, should help gov­ern­ment meet its near-term rev­enue tar­gets, says BNP Paribas Cadiz Se­cu­ri­ties SA econ­o­mist Jeff Schultz. The tax rev­enue tar­get for the 2015/2016 financial year is R1,1 tril­lion.

The num­bers that are likely to suf­fer from lower eco­nomic growth are the bud­get deficit tar­gets for the next three years.

If Nene can­not find ar­eas to re­duce ex­pen­di­ture, there is still the chance that he may raise taxes again, but not per­sonal in­come and cor­po­rate taxes. This is be­cause per­sonal in­come tax rates have al­ready been raised, though marginally, in the cur­rent fis­cal year and com­pa­nies are un­der pres­sure from eco­nomic cir­cum­stances.

Value added tax is in­creas­ingly look­ing like the one that will be raised in the Fe­bru­ary bud­get next year.

The pub­lic sec­tor wage bill will force gov­ern­ment to re­di­rect money meant for other things, such as em­ploy­ing more peo­ple. Ex­pec­ta­tions for debt to sta­bilise at high rates of al­most 50% of gross do­mes­tic prod­uct (GDP) will also weigh on the fis­cus.

SA faces both home-grown and global eco­nomic up­heavals.

Eco­nomic growth in the first few months of the year was crip­pled by power-sup­ply dis­rup­tions, which have since been re­duced as a re­sult of lower de­mand and the ad­di­tion of more power to the grid from a com­pleted unit at the Medupi power sta­tion.

In the sec­ond half, the ef­fects on the econ­omy of lower com­mod­ity prices and a slow­down in Chi­nese growth and de­mand are be­com­ing more pro­nounced.

Th­ese fac­tors and the slow pace of re­cov­ery in ad­vanced economies — where most SA-man­u­fac­tured goods are des­tined to go — will ham­per SA’s own eco­nomic re­cov­ery.

The Re­serve Bank has low­ered its growth fore­casts at three of the five meet­ings it has held this year as the eco­nomic en­vi­ron­ment has de­te­ri­o­rated. It is not good news for poverty al­le­vi­a­tion and job cre­ation.

SA’s GDP even con­tracted in the sec­ond quar­ter and the for­mal sec­tor shed 1 000 jobs.

That felt like a small num­ber, con­sid­er­ing the 1,3% de­cline in GDP in the sec­ond quar­ter. It is pos­si­ble that more jobs could have been lost, which the statis­tics agency may have not been able to record.

The In­ter­na­tional Mone­tary Fund (IMF) has to be the least op­ti­mistic of all the in­sti­tu­tions that fore­cast SA’s eco­nomic growth prospects.

At the start of the year, the global lender ex­pected to see SA’s econ­omy ex­pand­ing by 2,1% this year and 2,5% next year. Th­ese fig­ures were re­vised lower through­out the year and by Oc­to­ber were at 1,4% and 1,3% re­spec­tively.

❛❛ The Re­serve Bank has low­ered its growth fore­casts at three of its five meet­ings this year

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