The 2018 Medium Term Budget Policy Statement – Tito Mboweni’s first as Finance Minister – will have disappointed those who were hoping for evidence of a change, says Chris Eddy, senior investment analyst at 10X Investments.
He said the MTBPS painted a clear picture of the worsening state of public finances in South Africa with the budget deficit expanding to 4.2% of GDP over the medium term, GDP growth that was revised lower to 0.7%, impacting future revenue collection.
Whilst the current state of play is clear, if not worse than expected, there was no definitive statement around key issues that are currently constraining the fiscus and providing impediments to growth. There was no clear statement on privatisation of SOE’s, no clear statement on land reform, no clear statement on any other structural reforms.
“The MTBPS doesn’t really inspire confidence in terms of a new approach to dealing with SA’s fiscus and state-owned enterprises (SOEs),” says Eddy.
“And there were more bailouts of SOEs,” said Eddy. “Fiscal degradation remains entrenched.”
He described the outlook as negative, but added that there was a “lot of good talk” around how government institutions needed to be strengthened, with a greater focus put on rooting out corruption and adherence to the public finance management act.
“But the reality of lower revenue collection, because of low growth, combined with the failure to reign spending in means spending will have to be financed with additional debt. National Treasury projections have debt-to-GDP topping out at 59.6% in 2023/24, which is on the limit of the 60% that ratings agencies would be comfortable with.”
The market reacted negatively to the picture painted by the MTBPS with both the Rand and SA Government Bonds selling off, indicating that the budget could be considered ratings negative.
Eddy said one positive note with regard to SOEs was that Mboweni said Treasury has been working closely with the JSE around debt listing requirements. Basically, said Eddy, that means there will need to be increased transparency in order to list debt on the Johannesburg bourse, which means SOEs will be held to account more in terms of publishing financials, which would bring more transparency to investors investing in SOE’s debt.
Mboweni showed that he is looking to try to contain expenses where he can by not providing additional funding for the recently concluded R30 billion public sector wage negotiations. While some may view this in a positive light, the implication is that the additional wage cost is being passed on to local and provincial governments which means that there will be even less money for service delivery.
Mboweni made positive statements around how he is looking to tackle corruption, with decisive action regarding the problems that currently plague government. There was also a change in tone in the MTBPS that could be considered more business friendly, with Mboweni often referring to partnerships with the private sector.
“Let’s hope that he can be more impactful than his predecessors,” said Eddy.
