{"id":439725,"date":"2020-10-12T10:44:09","date_gmt":"2020-10-12T08:44:09","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=439725"},"modified":"2020-10-12T10:44:09","modified_gmt":"2020-10-12T08:44:09","slug":"next-weeks-budget-could-be-make-or-break-for-south-africa-here-are-9-things-to-watch-out-for","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/budget-speech\/439725\/next-weeks-budget-could-be-make-or-break-for-south-africa-here-are-9-things-to-watch-out-for\/","title":{"rendered":"Next week&#8217;s budget could be make or break for South Africa &#8211; here are 9 things to watch out for"},"content":{"rendered":"<p>Finance minister Tito Mboweni is scheduled to present his medium-term budget later this month (21 October), and following the impact of Covid-19 it is likely to be his most difficult <span class=\"aCOpRe\">juggling act <\/span>yet.<\/p>\n<p>It is the first real test of the credibility of the government\u2019s commitment to fix the country&#8217;s national finances, said Business Leadership South Africa chief executive Busi Mavuso.<\/p>\n<p>Mavuso said that the budget must show that public spending can be restrained to within the country&#8217;s means, to avoid a catastrophic collapse of public finances.<\/p>\n<p>&#8220;If it fails to show it is on course, we lose the faith of our lenders that we are serious about managing our finances.<\/p>\n<p>&#8220;That will accelerate the collapse. Last week, finance minister Tito Mboweni said that unless tough decisions are made, a fiscal crisis will hit us by 2024\/25. I think it could be even sooner than that.&#8221;<\/p>\n<p>Heightened consumer and business stress in South Africa has been exacerbated by the seventh most stringent lockdown restrictions in the world and this should keep a lid on growth prospects in the medium term, said Momentum Investments in a research note ahead of the mini-budget.<\/p>\n<p>Momentum Investments has highlighted nine items to watch out for next week.<\/p>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Post-pandemic nominal growth expectations<\/strong>: <\/span><span lang=\"EN-GB\">We expect real growth to average negative 0.8% between 2020 and 2023 in comparison to Treasury\u2019s June 2020 forecast of negative 0.4%, given the high risk of load shedding into 2022 and a slow recovery in fixed investment back to pre-crisis levels. Inflation is however expected to materialise at a marginally higher level. As such, our forecasts on nominal growth are broadly in line with those of Treasury.\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Tax collection in a fragile growth environment<\/strong>: <\/span><span lang=\"EN-GB\">The standstill in economic activity, triggered by the lockdown restrictions, had a detrimental effect on government revenue, while expenditure trends were only slightly weaker as government embarked on a countercyclical fiscal approach to prop up economic growth through spending.<\/span><u><\/u><u><\/u><\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Developments in the ongoing public sector wage bill dispute<\/strong>: <\/span><span lang=\"EN-GB\">The Organisation for Economic Co-operation and Development (OECD) showed that top managers in SA\u2019s civil service earn an average revenue of nine times the per capita gross domestic product (GDP), which is far higher than the six times recorded for the OECD average. Efforts to stick to proposed wage bill cuts in order will elevate Treasury\u2019s credibility in our opinion.<\/span><u><\/u><u><\/u><\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Ability to supplement pro-poor spending<\/strong>: <\/span><span lang=\"EN-GB\">With the lockdown restrictions having negatively affected a large number of households, calls for a basic income grant have been revived. Though additional taxes are difficult to implement in the current income-constrained environment, increasing support for a basic income grant highlights pressure on government to adopt a formal stance.<\/span><\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Drawing the line on state-owned enterprise (SoE) funding<\/strong>: <\/span><span lang=\"EN-GB\">With explicit guarantees adding around 8% to the debt-to-GDP ratio (total contingent liabilities added around 19% of GDP in the previous fiscal year), any additional guarantees or cash injections would add further strain to government\u2019s balance sheet.<\/span><\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Government\u2019s plan to achieve fiscal sustainability<\/strong>: <\/span>Given little room to manoeuvre on the revenue front, the extent to which government digs in its heels to curb expenditure growth will determine how successful it is in stabilising the debt ratio in the next five to ten years.<\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Addressing policy uncertainty<\/strong>: <\/span>Government\u2019s responses on contentious reforms have remained vague, as these issues remain a function of ideological tensions and are likely to elicit a polarised response from within the ruling party\u2019s structures. Recent developments on the release of state-owned land and increased dialogue around mobilising pension funds for bankable infrastructure projects have alleviated some of the uncertainty in the areas of land expropriation without compensation and prescribed assets.<\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Momentum behind structural reforms<\/strong>: <\/span><a href=\"https:\/\/businesstech.co.za\/news\/government\/438321\/ramaphosa-outlines-the-ancs-plan-for-south-africa\/\" target=\"_blank\" rel=\"noopener noreferrer\">The Economic Recovery Action Plan<\/a> is a positive stride towards social compacting, but it has not yet been endorsed by Cabinet and risks dilution, in our view.<u><\/u><u><\/u><\/li>\n<\/ul>\n<ul>\n<li><span lang=\"EN-GB\"><strong>Implications for SA\u2019s sovereign rating<\/strong>: <\/span>With no big reformist effort seemingly emerging from government, we believe the bias to SA\u2019s sovereign rating outlook is to the downside in the medium term.<\/li>\n<\/ul>\n<p>Minister Mboweni warned last week that if domestic banks and institutions were to remain the largest holders of South African bonds, a fiscal crisis could spread to banks and the financial system.<\/p>\n<p>Failure by South Africa to take measures could bring on a crisis as early as 2024, Bloomberg reported the finance minister as saying, citing an interview with Fin24.<\/p>\n<p>Mboweni said that his mid-term budget is likely to be unpopular as it will &#8216;deal with&#8217; issues like the heavily indebted national airline and other state-owned enterprises.<\/p>\n<p>The government has committed R10.4 billion to the airline to cover the costs it has already incurred while in business rescue, but the objective is to find a whole lot more to finance the reopening of the airline.<\/p>\n<p>&#8220;This is a waste of money. SAA delivers no social services or economic benefits that can\u2019t be better done by a competitive airline industry. It is the most obvious place to make savings,&#8221; said Mavuso.<\/p>\n<p>As government searches for other budget items to cut, the question to guide it is the value for money the public gets from the spending, the chief executive said.<\/p>\n<p>&#8220;That should be measured in the quality of services delivered to the public and the multiplier effects of the spending for the economy.<\/p>\n<p>&#8220;Expenditure that has no clear link to the quality of services (expensive blue light brigades for politicians come to mind) or that which has no positive impact on the economy (SAA) should be the first to go.&#8221;<\/p>\n<p>Meanwhile, the economic recovery plan presented last week by the ANC has been described by analysts as \u201cterrible, archaic, and disturbing\u201d, <a href=\"https:\/\/www.news24.com\/citypress\" target=\"_blank\" rel=\"noopener noreferrer\">City Press<\/a> reported.<\/p>\n<p>Speaking to the publication, analysts described the plan that was proposed by the ANC to facilitate economic growth following the impact of Covid-19 as \u201ca list of items with no strategic thinking\u201d.<\/p>\n<p>The ANC reportedly presented the National Economic Development and Labour Council (Nedlac) economic recovery plan at the meeting, which was described by SA Communist Party spokesperson Alex Mashilo as lacking any form of strategy.<\/p>\n<p>\u201cI don\u2019t want to come across as hard, but maybe we don\u2019t know what a plan is and what a strategy is,\u201d he said.<\/p>\n<p>Centre for Economic Development and Transformation founding director Duma Gqubule told the City Press that the plan is virtually non-existent.<\/p>\n<p>\u201cIt looks like it was written by an intern,\u201d Gqubule said. \u201cAt least 95% of the items mentioned in the economic recovery plan have not been costed.\u201d<\/p>\n<p>There is reportedly no mention of macroeconomic, monetary, or fiscal policy, which he said was concerning considering the severe damage done by the Covid-19 pandemic to the local economy.<\/p>\n<hr \/>\n<p><strong>Read: <a href=\"https:\/\/businesstech.co.za\/news\/government\/439693\/anc-presents-disturbing-recovery-plan-as-south-africa-faces-crisis-as-early-as-2024-report\/\" target=\"_blank\" rel=\"noopener noreferrer\">ANC presents \u2018disturbing\u2019 recovery plan with South Africa facing crisis as early as 2024 \u2013 report<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Finance minister Tito Mboweni is scheduled to present his medium-term budget later this month (21 October), and following the impact of Covid-19, is likely to be his most difficult juggling act yet.<\/p>\n","protected":false},"author":10,"featured_media":410527,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13716],"tags":[26],"class_list":["post-439725","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-budget-speech","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/439725","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\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=439725"}],"version-history":[{"count":7,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/439725\/revisions"}],"predecessor-version":[{"id":439885,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/439725\/revisions\/439885"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/410527"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=439725"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=439725"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=439725"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}