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October 27th, 2016 by


FNB released a statement on their review of the MTBPS speech by Pravin Gordhan in Parliament yesterday. The statement was written by FNB Macro-Economist, Mamello Matikinca. Here are her thoughts and predictions:

South Africa’s economic context is a country whose creditworthiness has deteriorated over the last few years because we have lived beyond our means.

National income has been constrained in recent years because of weak domestic growth. Exogenous shocks such as electricity shortages, labour unrest, a steep decline in our export commodity prices and low business confidence have been the major constraints. National Treasury (NT) under both Ministers, Nene and Gordhan, has played a critical role in stabilising this dire situation.

The initial strategy was the introduction of expenditure ceilings on non-interest spending. The ceilings have been successful in containing spending growth since 2012.

Watch the MTBPS recorded video below.

Decline In Budget Deficits Has Disappointed Expectations

Macroeconomic Outlook

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Matikinca believes the economic outlook since the delivery of the Budget review early this year has been more disappointing than the NT had anticipated. As a result, the GDP growth forecast has been lowered to reflect the weak 1H16 growth and expected slowdown in the 2H16. NT now expects GDP to slow to 0.5% in 2016 down from 0.9% previously.

GDP Growth in the outer years of the three-year budget cycle has also been downwardly revised and is expected to increase to 2.2% in 2019, supported by improved electricity supply, labour relations and business confidence. While slightly more optimistic than our forecast of 0.2% GDP growth in 2016 and 1.5% average for 2017-2019, the revisions bring NT more or less in line with market expectations.

Headline inflation has also been downwardly revised in line with the expected moderation in inflationary pressures. 

The Bottom Line? 

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The additional consolidation measures announced in the MTBPS provide further evidence of a strong commitment to reduce the deficit and stabilise debt.

However, fiscal consolidation is only part of the problem. Growth initiatives that generate tax resources and render the fiscal adjustment process less painful and more sustainable are lacking.

Furthermore, there is nothing in the MTBPS that suggests we should revise up our admittedly low medium-term growth expectations.

There is a great deal of rhetoric around reform initiatives that are pending. The problem is they have been pending for some time. The ratings agencies could therefore easily downgrade SA on weak growth despite evidence of a serious consolidation effort.

The timing is at their discretion, but an S&P downgrade to BB+ on the foreign currency rating would be within the next 12 months. Matikinca says she predicts as early as June 2017. 

Missed The “Mini-Budget” Speech? Watch It Here: