Changes to the economic outlook since the cabinet sat last week - hours before the firing of Nhlanhla Nene as finance minister - mean the Treasury will have to adjust its projections before the Budget can be finalised, economists have said.
The decision to postpone to January a special meeting on the economy that was to have sat on Friday suggested the Cabinet was allowing the dust to settle after the gyrations in the market of the past week, said Efficient Group chief economist Dawie Roodt.
He said it would take time for the markets to digest recent events and settle, but it was impossible to predict at what level this would happen.
“So my advice to my clients is, go on holiday, have a beer, relax a bit, do not play the currency because you think it’s going to go in one direction only, because we don’t know,” Roodt said.
“I guess that’s perhaps the same approach the Cabinet, correctly, is following at the moment - that is, wait and see what’s going to happen, see where things are going to stabilise and once we’ve seen what the market’s verdict is we can make the next call.”
Econometrix chief economist Azar Jammine said a lot had changed since the Cabinet’s last meeting and President Jacob Zuma’s shock announcement he was firing Nine, triggering a rout on the stock exchange, especially in the banking sector, and a plunge in the value of the rand.
“The inflation outlook has changed, therefore the interest rate outlook has changed, therefore the economic growth outlook has changed, for the worse, which means less growth in tax revenues to be forthcoming and also a very much higher interest bill on government debt,” Jammine said.
If the Budget figures were not revised, the government ran the risk of running a bigger budget deficit than intended.
Roodt agreed inflation was set to become a major headache for the country and new Finance Minister Pravin Gordhan as a result of the rand’s losses.
The price of maize - which will have to be imported in large quantities thanks to the prevailing drought - would be especially hard hit.
“Without a doubt the rand coming under pressure recently will have a huge impact on food inflation, but normal inflation as well,” Roodt said.
Investment Solutions economist Chris Hart said damage control since the reinstatement of Gordhan had been largely successful, but the government now needed to assess why the country was doing so poorly in mobilising investment to boost growth.
It should allow the economy to lead its development agenda “instead of trying to get the cart to push the horse”.
“Our social spending is unsustainable without growth,” he said, and unless growth was revived would ultimately force the government to approach the IMF for a bailout, resulting in spending cuts being imposed on the country.
The Presidency said on Friday the Cabinet meeting - which was also due to finalise Budget allocations - had been postponed to January, before the Cabinet lekgotla that usually precedes the opening of Parliament and State-of-the-Nation Address, but did not give reasons.
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