{"id":278669,"date":"2018-10-22T07:28:30","date_gmt":"2018-10-22T05:28:30","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=278669"},"modified":"2018-10-22T07:28:30","modified_gmt":"2018-10-22T05:28:30","slug":"bad-news-budget-expected-this-week","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/278669\/bad-news-budget-expected-this-week\/","title":{"rendered":"`Bad news’ budget expected this week"},"content":{"rendered":"
\n

Finding R50 billion ($3.5 billion) for a stimulus package is the unenviable task facing South African finance minister Tito Mboweni in the mid-term budget – and he\u2019s only two weeks into the job.<\/p>\n

Mboweni has to do that after an inflation beating wage increase for civil servants and with state companies burning cash. He also has to show on Wednesday how the government plans to stem escalating debt to help ward off another credit-rating downgrade, that its self-imposed spending ceiling remains intact, and that the first-half recession is a thing of the past.<\/p>\n

The former central bank governor was appointed to the position on Oct. 9, after Nhlanhla Nene resigned, and will have little room to maneuver. A Bloomberg survey shows the government won\u2019t meet its goal of narrowing the budget deficit to 3.6 percent of gross domestic product this fiscal year.<\/p>\n

\u201cThere\u2019s really no doubt that this year\u2019s budget will contain a lot of bad news — the only real question is how bad,\u201d said John Ashbourne, an economist at Capital Economics Ltd.<\/p>\n

\u201cMboweni will prioritize holding to the deficit target, but this will require painful cuts. There isn\u2019t, frankly, a lot of money available.\u201d<\/p>\n

President Cyril Ramaphosa\u2019s recovery plan calls for spending to be re-jigged to fund projects that can spur growth and cut into the country\u2019s unemployment rate of 27%, near a 15-year high. This comes after Africa\u2019s most-industrialized economy slipped into its first recession in a decade and S&P Global Ratings and Fitch Ratings Ltd cut the nation\u2019s debt to junk last year.<\/p>\n

Investment Summit<\/h3>\n

Moody\u2019s Investors Service warned this month it could follow suit if South Africa doesn\u2019t stabilize debt.<\/p>\n

Ramaphosa replaced Jacob Zuma as president in February, vowing to stimulate growth and attract investment, fix state companies and root out corruption. The budget comes a day before the start of a three-day investment summit to help lure $100 billion into the economy, with investors seeking evidence finances are under control.<\/p>\n

\u201cWe expect some revenue under-performance, though the year-to-date data suggests that this should be modest,\u201d said Elna Moolman, the head of economics at Standard Bank Group Ltd, Africa\u2019s biggest lender.<\/p>\n

\u201cThe challenges will rather be on the expenditure side, where the higher-than-budgeted wage settlement, spending related to the presidential stimulus and recovery plan, and possible support for the state-owned companies would have to be accommodated.\u201d<\/p>\n

Higher Taxes<\/h3>\n

Economists estimate the budget deficit at 3.8% of GDP in the current fiscal year, and that it will be in line with the Treasury forecasts of 3.65 and 3.5% for the next two.<\/p>\n

Gross debt was projected by officials in February to peak at 56% of GDP in 2021. While the cost of servicing this is the third-fastest growing expense in the budget, the projection was an improvement on the more than 60 percent given a year ago.<\/p>\n

Personnel costs account for about 35% of state spending, and a three-year wage agreement will see 1.3 million civil servants getting raises of as much as 7% for the year through March 2019.<\/p>\n

State firms have also been a drain on the budget, with large bailouts to power utility Eskom Holdings SOC Ltd and South African Airways. Guarantees on debt to the companies total more than R460 billion, of which 65% has been taken up, according to the Treasury. That exposure was flagged by rating companies as one of the key risks for the economy.<\/p>\n

Higher income tax rates and the first increase in value-added tax since 1993 may have helped plug the gap, but the burden has weighed on households amid rising fuel costs and there may not be space for further measures.<\/p>\n

Mboweni is \u201cin a very tight space,\u201d Isaac Matshego, a senior economist at Nedbank Ltd., said by phone. \u201cThe government will tread very carefully.\u201d<\/p>\n

\"\"<\/a><\/p>\n

\n

Read: Here\u2019s what you can expect from the Medium Term Budget<\/a><\/strong><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Finding R50 billion ($3.5 billion) for a stimulus package is the unenviable task facing South African finance minister Tito Mboweni in the mid-term budget – and he\u2019s only two weeks into the job.<\/p>\n","protected":false},"author":59,"featured_media":135229,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[7329,26,1512,11449],"class_list":["post-278669","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-fitch-ratings","tag-headline","tag-moodys","tag-sp-global-ratings"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/278669","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=278669"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/278669\/revisions"}],"predecessor-version":[{"id":278675,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/278669\/revisions\/278675"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/135229"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=278669"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=278669"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=278669"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}