Johannesburg - South Africa’s medium-term budget speech, to be presented to Parliament next week, will be closely watched for signs the authorities remain focused on fiscal consolidation, according to Standard Chartered.
After Finance Minister Pravin Gordhan was charged with fraud last Tuesday, it is anybody’s guess whether he will still be in charge of the portfolio or someone else will have taken over.
Already there are ominous signs of Gordhan’s role in the government.
He was excluded from President Jacob Zuma’s ministerial task team to normalise the situation at higher education institutions across South Africa. Later, Gordhan was also excluded from the ministerial delegation to the Brics summit.
The ANC said it would make its decision on Gordhan as a matter of urgency.
The ANC’s 2012 Mangaung conference adopted a resolution that those in its ranks who are criminally charged should resign to clear their names.
Standard Chartered, in its global research report last week, said the loss of South Africa’s credit rating was averted with the reading of the annual budget in February, when Gordhan unveiled broad plans to cut spending and raise revenue to achieve faster fiscal consolidation.
Public sector
It said the mini budget would be important for the retention of investment grade status.
“Plans to tackle public sector compensation from the 2017 financial year were particularly well received. In the post-global financial crisis years, increased spending on public sector compensation was a big driver for fiscal consolidation. The public sector compensation plans outlined in February 2016 were therefore seen as an important political statement by the Treasury on its fiscal consolidation intent.”
Standard Chartered said while other details on what might drive future consolidation were left relatively vague, narrower deficits would be achieved through a mix of as yet unidentified revenue and expenditure.
“South Africa’s room to manoeuvre is narrowing.”
It said weaker-thanexpected growth had had a limited impact on revenue mobilisation, so far at least.
“Upside revenue surprises have largely prevented further fiscal deterioration. However, this could change over the coming years, especially in the context of rand appreciation and a potential reduction in notional profits on official financial transactions. This may bring more pressure for spending cuts.”
The bank said South Africa might also need more aggressive tax measures, such as a VAT rise, in order to compensate for weak growth and weaker tax receipts. Should rating pressure become more severe, a rise in the VAT rate in the 2018 financial year 2018 become more probable.
Standard Chartered said it saw a wider fiscal deficit in the 2017 financial year of 3.5 percent of gross domestic product (GDP) against 3.3 percent previously, reflecting weaker-than-expected nominal GDP and fiscal receipts. “However, we expect new measures to be announced to allow the deficit to narrow to 3 percent in 2018.” It said finances of state-owned enterprises would also be closely monitored.
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