Cape Town – Ratings agencies are likely to view Finance Minister Pravin Gordhan’s 2017 Budget Speech in a relatively neutral light, said Jeffrey Schultz, economist at BNP Paribas.
Although the Treasury managed to avoid further GDP growth downgrades (for the first time in six years) and stuck to its lowered expenditure ceilings announced in the medium-term budget policy statement last October, ratings agencies may be disappointed by the fact that South Africa will only have a budget surplus by the 2018/19 – a year later than what was promised in October.
“Undesirably, Treasury only now anticipates achieving a primary budget surplus of 0.2% of GDP by 2018/19 from an estimated deficit of -0.1% of GDP in 2017/18. Although the achievement of a primary surplus is still ultimately obtained over the medium-term, we believe ratings agencies will be disappointed that the finance ministry is kicking the can down the road in much the same way as its debt-to-GDP profile has evolved,” Schultz said.
Ratings agencies may also be underwhelmed by the lack of meaningful breakthroughs on much needed economic growth reform initiatives.
“Instead the finance minister rather provided progress updates on the labour market (national minimum wage), mineral and land policy, the funding of higher education, the on-going review of business incentive programmes and the need to cut red tape to improve the ease of doing business – nothing new.”
Herman van Papendorp and Sanisha Packirisamy from Momentum Investments said rating agencies are likely to take comfort from the fact that government remains committed to fiscal consolidation.
“Nevertheless, unfavourable economic conditions and the absence of bolder reform efforts could still, in our view, lead to a downgrade by the end of the year as downtrodden business and investor confidence continues to hinder SA’s longer-term growth prospects, leaving South Africa’s fiscal and debt metrics susceptible to adverse shocks.”
They also believe that disparaging political developments could tarnish the rating agencies’ view of SA’s institutional framework.
Not so radical
Christie Viljoen, economist at KPMG, said Gordhan’s address eased some concerns about how “radical” the “radical socio-economic transformation” would be.
In his speech, Gordhan said he agrees with President Jacob Zuma that a new perspective on economic transformation is needed. He emphasised though that sound public finances, the health of South Africa’s financial institutions and investment-grade credit ratings are also valued elements in the sustainability and integrity of the country’s transformation path.
“The minister’s speech showed that the National Treasury is still steering the fiscal ship towards consolidation,” Viljoen said, “and the only comment that could maybe seen as somewhat radical (in a local political context) is the commitment by the minister to not only increase competition in monopolised private industries, but to also endeavour for ‘greater private sector participation’ in sectors dominated by public enterprises.”
The ruling party’s often referenced “developmental state” philosophy includes strong state intervention in and control over the economy, so Minister Gordhan’s statement on greater private participation is surprising. It would be good to see more detail or something more tangible about this potential change in policy, Viljoen said.
Gordhan has, with his 2017 Budget Speech, yet again demonstrated that there is a depth of fiscal management skills available within our Treasury department, which is able to respond to the challenges of the day, said Tandisizwe Mahlutshana, Executive of Marketing at PPS Investments.
Levelheaded Gordhan’s honest analysis
“Although the bold pronouncements in this year’s budget may have a few panicking, the majority of South Africans stand to be net winners.”
This Budget Speech comes amid heightened political tensions and infighting within the ruling party, which appear to have a direct impact on the future of National Treasury, and ultimately on the finance minister himself Mahlutshana said.
“However, Gordhan’s levelheadedness ensured that the country is not deprived of its right to hear an honest analysis of where we are economically and our government’s strategies to move the country forward.”
* Visit our Budget Special for all the budget news and in-depth analysis.
Read Fin24’s top stories trending on Twitter: