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Here's What Finance Minister Pravin Gordhan Will Have To Say In The Budget Speech

The National Budget Speech will be presented against the backdrop of sluggish economic growth, the funding gap and uncertain global economic conditions.

22/02/2017 04:59 SAST
Mike Hutchings / Reuters
Finance Minister Pravin Gordhan delivers his 2016 Budget speech to parliament.

By some predictions, the 2017/18 budget that Pravin Gordhan and his team will present to parliament on 22 February could be his last as finance minister, with some predicting that even his deputy will not last. This is because of speculation that former Eskom CEO Brian Molefe has been parachuted to parliament ahead of his appointment to cabinet to replace Gordhan. Others do not think so.

While the jury is still out on that, what is clear is that Treasury is confronted with a myriad of demands and expectations to ensure that Africa's most advanced economy is firmly put on a sustainable growth path to deal with unemployment and a huge poverty and income gap that has condemned millions to scrapping for a living.

The National Budget Speech will be presented against the backdrop of sluggish economic growth, looming threat of a possible negative view by independent rating agencies (Moody's rating review decision is expected on 7 April 2017 and S & P on 2 June 2017), fees must fall campaign, funding gap of about R28 billion and uncertain global economic conditions.

GDP growth estimates for 2017 vary between 1.4 percent to 1.7 percent on the back of a better agricultural season, improved commodity prices and recovery; albeit slow in manufacturing, while consumer spending is expected to remain subdued due to elevated household debts.

Even more worrying is that domestic investment remains low due to what corporate SA says is regulatory and policy uncertainty. Last estimates show that SA non-financial corporates are sitting on cash deposits of over R700 billion - and growing.

Against this background, the government, working together with the private sector, must find ways to achieve inclusive growth given the current unemployment rate of 26.5 percent or 5.8 million unemployed, as of the last quarter of 2016.

For business, it is markedly a year of political uncertainty given the ANC succession battles, which could affect government policy implementation, even though the ANC has said it is business as usual.

One can argue that President Zuma's SONA speech, whose theme was "radical economic transformation", will guide government policy announcements and implementation going forward. We should therefore expect more populist measures that could have fiscal implications, putting further pressure on Treasury to identify additional funding sources.

Rating agencies are more interested in execution credibility of the government's fiscal consolidation strategy, and whether it is able to contain the budget deficit and expenditure limits. They are concerned, for example, about debt service costs and the growing civil service wage bill. These are some of the variables that will influence their rating reviews.

It is not yet clear whether SA will escape a credit downgrade in 2017. Analysts say the chances of a downgrade, although lower than they were prior to the last rating announcement made in December 2016, haven't receded. The political noise surrounding the finance minister and the resultant speculation about his tenure in his portfolio, have not helped. For business, it is markedly a year of political uncertainty given the ANC succession battles, which could affect government policy implementation, even though the ANC has said it is business as usual.