Business as usual – finance minister
INVESTOR FEARS: FINANCE MINISTER SAYS HE’S STICKING TO PLAN
Malusi Gigaba promises economic policy stability and continuity as the new head of National Treasury.
Finance Minister Malusi Gigaba promises economic policy stability and continuity after his appointment roiled markets and saw two subsequent ‘junk’ downgrades.
Finance Minister Malusi Gigaba has met local asset managers to provide some clarity on his priorities as the new head of National Treasury. In a speech that could have been written by Pravin Gordhan, he was at pains last Thursday to emphasise that there will be no upheaval at the Treasury.
“The key message we want to communicate is continuity,” Gigaba said. “We want management continuity at National Treasury. It is a strong, professional and stable institution, and we want to keep it that way.”
He made it clear being downgraded was a serious concern, and appeared to acknowledge it had upset the country’s economic recovery.
“Before the downgrades, green shoots were becoming increasingly evident,” Gigaba noted. “Business confidence improved in the 1st quarter of 2017; the inflation outlook had begun to improve; the current account deficit had narrowed sharply; and March was the third consecutive month in which the manufacturing Purchasing Manager’s Index (PMI) expanded.”
He added that government will be working hard to avoid further downgrades and restore the country’s investment-grade status.
“We are fully aware of the negative impact ratings downgrades can have on government’s ability to borrow affordably, and on the private sector’s ability to attract foreign investment,” he said. “We are also cognisant of the impact on society and the everyday livelihoods of South Africans.”
Gigaba also emphasised fiscal prudence would not be compromised.
“We are committed to the fiscal consolidation plans as articulated in the 2017 budget,” he said. “We aim to stabilize government's net debt over the next three years at 50% of GDP. To accomplish this, we are tightly controlling expenditure, with budget deficits narrowing from 3.4% of GDP last year, to 3.1% in 2017/18, and narrowing to 2.6% in 2019/20. Any spending pressures will need to be accommodated within the current baseline, without breaching the expenditure ceiling.”
There was nothing in his speech that suggested any deviation in policy or approach from his predecessor.
“It was clear that he was intent on soothing investors,” noted André Roux, the co-head of emerging market fixed income at Investec Asset Management. “Radical economic transformation’ was played down deliberately and relabelled as ‘inclusive growth’.”
Gigaba also touched on the nuclear energy programme.
“The issue of nuclear energy procurement has come up in almost all of our media briefings,” said Gigaba.
“To reiterate a commitment already made by government: any procurement of nuclear energy will follow due process as required by the Constitution and the Public Finance Management Act (PFMA), and will proceed only at a pace and scale that the country can afford.”
“On the nuclear front, the tone of his answers suggested that he is in favour of the programme, but emphasised that it would be at a pace and scale that is affordable,” Roux said.
“This may be interpreted as evasive in the absence of hard numbers.”