The downward adjustment on South Africa’s growth expectations announced by Finance Minister Tito Mboweni when delivering the country’s 23rd Medium-term Budget Policy Statement (MTBPS) is a rather bitter pill to swallow.
The minister told Parliament on Wednesday that the country’s growth expectations now stood at 0.5% of gross domestic product (GDP), compared with 1.5% anticipated in February.
This was one of the most alarming takeaways from the MTBPS, according to Jameel Ahmad, FXTM global head of currency strategy and market research. Ahmad says this did nothing to help investor sentiment because it painted the same old picture that the South African economy would continue to underwhelm.
This undermines the vision of the founders of this democratic society.
But Mboweni was hailed for painting a true picture of the state of the country’s economy, although there were worries about market reactions to the country’s ballooning debt. This year’s national debt exceeded R3 trillion and is expected to rise to R4.5 trillion in the next three years.
As things stood, without any policy adjustments, debt would probably exceed 70% of GDP by 2022/23. The consolidated budget deficit is now projected at 5.9% of GDP in the current year, Mboweni said. “If we exclude Eskom, non-interest spending would have been R2.9 billion less than projected.”
Economists also say the fact that the fiscal position has worsened significantly since February was something Moody’s ratings agency would frown on.
Meanwhile, Outa is bemused by Mboweni’s determination to cling to the e-toll scheme as an efficient user-pays financial solution to settle the freeway upgrade bonds. Wayne Duvenage, Outa’s chief executive, says the reality is that compliance is at an all-time low of 20%.
This, indeed, was a tough balancing act for Mboweni and, as expected, his delivery was received with mixed feelings. The reality is the country is in dire need of a boost in revenue collection, but in its current state, some tough decisions need to be made.
All eyes are now on the SA Reserve Bank’s Monetary Policy Committee interest rate decision, which is largely expected to lower interest rates after the most recent inflation figures showed negative growth.