Scepticism to stimulus plan

ODDS SLIM: EXPERT GIVES RAMAPHOSA LITTLE CHANCE OF KICKING RECOVERY INTO GEAR

Reallocation as opposed to introducing more debt is a ‘positive move’.

When a country introduces a fiscal stimulus package into a struggling economy, currencies and markets normally strengthen in anticipation of faster economic growth, job creation, and market-friendly policies.

However, the rand’s marginal decline and the muted market reaction last Friday after President Cyril Ramaphosa revealed a stimulus package aimed at putting SA’s damaged economy back on course suggests scepticism.

Ramaphosa’s plan mimics interventions by Indian Prime Minister Narendra Modi who, in 2015, set India on a course of raising billions from long-term international investors to fund infrastructure projects. But unlike India, there’s no money to fund new, productive investments to stimulate growth.

The Reserve Bank expects SA’s economy to grow by 0.7% in 2018; India expects 7.4%. SA’s budget deficit in relation to its GDP is expected to be 3.6% in 2018-19 (although latest estimates are 4%), while India expects 3.3%. And, although India’s debt-to-GDP ratio is projected to be 69% in 2018 (SA, 53%), it has economic growth to cushion the debt burden.

So why haven’t markets responded?

Daniel Silke of Political Futures Consultancy says any implementation of a stimulus package hinges on whether the government is able to run itself.

“What is the state of the bureaucracy? Are there officials that are patronage-focused rather than performance-focused? How do you make the state more effective? There are still big questions that remain.”

With just months to the election and the ANC deeply divided, there’s little chance Ramaphosa can kick the stimulus into gear.

Says Silke: “If Ramaphosa can secure a reasonable election victory for the ANC next year, then he will be more secure.”

Citibank’s Gina Schoeman rates the plan 8/10, saying reallocation as opposed to introducing more debt is a “positive move”.

Finance minister Nhlanhla Nene says Treasury has undergone an “excruciating process of reviewing underperforming programmes” to free up R50 billion.

More details will be unveiled in the mini budget on October 24.