Budget Watch

Medium Term Budget statement due for scrutiny

Malusi Gigaba
Malusi.jpg

It will be his first, but one of the most closely scrutinised ever medium-term budget and policy statements (MTBPS) in history, when Malusi Gigaba takes the floor in Parliament on 18 October.

It will not only be the first such a statement of the latest minister of finance in the Zuma administration, appointed under highly controversial circumstances, but will also be the first MTBPS since the country’s budget process has been move from its tradition “home,” the National treasury, to the Presidency.

It also comes amidst growing evidence of state capture and news headlines of how international auditing firm KPMG got involved in a bogus report framing respected former minister of finance, Pravin Gordhan as being complicit in setting up so-called rouge intelligence unit within the Treasury.

In reports last week, Gigaba himself was fingered for allegedly capturing the treasury with personal appointments of staff, effectively annulling the power of senior treasury officials, in including Director General Dondo Mogajane.

The statement also comes fresh on the heels of Gigaba using funds to the tune of R3billion, allocated in the March budget to government departments, for a South African Airways bailout.

Also read: SAA a symptom of a much bigger problem

At the same time, the country is experiencing high levels of political turmoil and uncertainty, adding pressure on an economy that did not deliver the governments projected growth rate of 1.7%, leaving a shortfall of close to R45 billion in tax revenues.

Political and policy uncertainty are also dampening both domestic and foreign investment in the economy.

And, it is not as if there is no private sector capital available to invest. On Monday, it was reported that Cape Town based Naspers will be buying stocks to the tune of R10 billion in a German online food delivery company.

In the words of one commentator, spoken against the background of the ANC’s policy conference in July, putting prescribed assets for pension up for discussion as a source for development capital: “For any financial and wealth management planner, this has created an absolute nightmare when it comes to planning the investment allocation and retirement options of their clients.

“The easiest, and safest options are to advise their clients to take their hard-earned cash offshore via any number of attractive international investment and pension vehicles.”

In the meantime, the country’s largest private fixed-income money manager, Futuregrowth, has threatened to cut lending to a state company, the Umgeni Water.

Umgeni Water has reportedly raised over R3 billion in bonds – if withdrawn, that would put Treasury in the position of having to find another multi-billion-rand bailout.

Another report has it that the impacts “of the uncertainty are clearly visible in the caution foreign investors are exercising with regard to SA stocks and bonds. Emerging-market strategists at firms from London to Zurich and New York are citing uncertainty and ongoing volatility at least up to December as the main inhibiting factor causing investors to curb their appetite for SA.”

Domestically researchers estimate that corporate SA is holding back on investing a cash pile of as much as R1.4-trillion.

After the failed vote of no confidence in President Zuma in August, the Consumer Goods Council of SA (CGCSA) said its members are willing to invest more locally, but require policy clarity and political certainty before doing so.

Against the background of the shortfall in tax collected most observers are of the opinion that South Africans should prepare themselves for a wide range of tax increases, which could include higher Capital Gains Taxes, dividend taxes and possibly an increase in Value Added Tax (VAT) on 18 October.

Meanwhile, Gigba’s MTBPS and Adjustments Budget will also be closely scrutinised by the international credit ratings agencies ahead of their next round of SA credit rating decisions.

With two of the three leading agencies already having downgraded SA’s sovereign rating to junk, the third could well do so in December or early January.

Unless Gigaba manages to pull some rabbits from his hat, it is difficult to identify some light at the end of the dark economic tunnel while political uncertainty is set to rather increase than improve for some time to come.

Also read: ANC self-destruction leaves SA in uncertainty

 

by Intelligence Bulletin Team

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