There is no more money

PLANS LACKING: BUDGET DEFICIT UP 39%

Gigaba didn’t address the various elephants in the room.

The fiscal prudence former finance ministers Nhlanhla Nene and Pravin Gordhan instilled in state finances since the 2009 financial crisis, seems to have been wrecked in a mere six months since February’s main budget.

This is evident in the salient numbers in the medium-term budget policy statement (MTBPS). The most startling number is the revised budget deficit, which is set to hit 4.3% for the current financial year, ending February 2018. This is 1.2 percentage points higher than the 3.1% predicted in February 2017 – it represents a 39% deterioration in a matter of eight months!

In rand terms, the budget shortfall will amount to around R203 billion – 14% of the total expense budget of R1.4 trillion.

The critical metric of total state debt to GDP is also in virtual freefall.

Gigaba stated that, unless something materially happens, SA’s on course to see this ratio hit 61% in 2022. That’s 10 percentage points up from the 51%-level seen in 2016’s budget.

Interest payments on this debt are set to rise to 15% of the total expenditure budget by 2021.

Acknowledging challenges

The MTBPS documents, and Gigaba in his address, acknowledged these challenges quite candidly and stated that they can only be overcome through increased inclusive, transformational economic growth.

But the MTBPS lacked tangible plans. It may not be the platform where new plans are announced, but given the fiscal erosion it would have been prudent to at least surprise with proactive steps to mitigate a further deterioration.

This is evident from Gigaba’s speech where he used the word “must” no less than 48 times, most of which in the context of what needs to happen to stimulate inclusive economic growth.

But apart from frequent references to the 14-point plan announced earlier this year, there were nothing significant that may change the current trajectory. There weren’t serious austerity plans either.

Confidence

Gigaba did address the key issue of the lack of confidence within various sectors and among many economic stakeholders. He acknowledged stringent steps to stabilise the dire state of many state-owned enterprises eg SAA, Post Bank and Eskom.

This, however, has been a theme for some time now, and I think the private sector would struggle to find anything between the lines to boost their confidence levels.

In fact, this MTBPS instils very little confidence that government can turn this ship around.

Elephants in the room

Gigaba didn’t address the various elephants in the room, several of whom were sitting a few metres away from the podium. State capture, corruption and a nuclear build plan didn’t feature.

This all means the expanding ripple effect of the ongoing political turmoil in SA has now hit its fiscal position – one of the last remaining assets we had to stave off further ratings downgrades.

We can therefore kiss the last remaining credit rating from Moody’s goodbye, and expect Fitch and Standard and Poor’s to cut their already sub-investment grade ratings even further.