Business Report (BR) journalists interviewed various economists in the countdown to Finance Minister Malusi Gigaba’s first Medium-Term Budget Policy Statement (MTBPS) on Wednesday.
Interestingly, all economists actually “feel” for Gigaba, “this is one of the most difficult and challenging MTBPS’s since 1994, he has to deal with some of the most serious and difficult challenges ever”, said Dr Chris Harmse, Rebalance Fund Managers economist.
Harmse said: “Gigaba faces a hostile geo-political environment that is unprecedented since the ANC took over the government. Not only is the economy, and therefore the state finance, in a dire state, but the global, political and social pressures on Gigaba are immense.”
Gigaba’s MTBPS takes place in an environment of:
A weak economy, with an expected economic growth rate of 0.7percent or even less for 2017. This is much lower than the forecast of 1.3percent set by the previous minister of finance, Pravin Gordhan, in February.
Tax revenues that are dwindling with an expected R50billion less in taxes to be collected by SA Revenue Service in the 2017/18 tax year, as the expected growth in final household consumption of 1.3percent, set in the February budget, will not realise. In the February budget it was expected that the main budget primary deficit will halve from 1percent of gross domestic product (GDP) in 2015/16 to 0.5percent of GDP in 2016/17.
The reality is that this deficit is expected to increase in 2017/18 to more than 1percent of GDP and the total budget deficit to nearly 4percent of GDP, instead of the 3.1percent deficit listed in the main budget.
The unemployment rate has increased from 26.5percent during the fourth quarter of 2016 to 27.7percent, during the second quarter of 2017, with joblessness among the 18- to 29-year olds averaging more than 45percent.
Net debt that was forecast in the main budget in February to remain below 48percent over the next few years, is now on the brink to be higher than 50percent of GDP.
The challenges of financing the R10billion grant to the national air carrier SAA.
The various acquisitions of state capture and its effects on the economic and social environment.
The arguable unavoidable downgrading to junk status and non-investment grading by the rating agencies.
Gigaba must clearly state how he will adjust the estimates of national expenditure and revenues to address the above challenges. He has to clearly indicate measures of securing the country’s fiscal and financial position and, more importantly, how the use of taxpayer funds will be more transparent.
Economists expect Gigaba to announce steps to strengthen the public finance management as state capture and corruption allegations are on their highest level ever. The finance minister has the painful task to shed light on increased taxes that are expected to be introduced in the February 2018 main budget.
Lastly, and of much importance, is that Gigaba has to address the challenge to outline a realistic framework for inclusive growth and the transformation of the South African economy in line with the targets set by the National Development Plan and the implementation thereof.
Adri Senekal de Wet is the exectutive editor of Business Report.
- BUSINESS REPORT