Page 85 - The Corporate Report Pack

Meganomics
Meganomics
Opinion report on the 2017/2018 National Budget Review
Colen Garrow
While the forecasts move in the correct direction, the acid test is whether they can be achieved.
Having to do more, with not enough resources to do it with, is always going to be tricky. at was the challenge facing Finance Minister Pravin Gordhan, as he delivered the National Budget for 2017/2018. Introducing a new income tax bracket for high income earners and compliance with the Common Reporting Standard would see the assets of South Africans held o shore disclosed more accurately, and taxed.
While the forecasts move in the correct direction, the acid test is whether they can be achieved. To begin with, GDP growth is estimated at 0.5% for 2016, rising moderately to 2.2% by 2019. It is important that this growth base be estimated as accurately as possible, as it in uences a wide number of key nancial stability ratios. For instance, the budget de cit for 2017/2018
of these rolling three-year projections have an overly optimistic bias. is trend has contributed to the scal slippage, which concerns market participants.
What investors would like to have heard more of, was that an axe was being taken to failing state-owned enterprises (SOEs), that political ideology was being put aside, and that there indeed was a sustainable plan to work with the private enterprise. While the Minister has more recently brokered détente between government and the private sector, which successfully averted a rating downgrade, the questions asked are whether this could be sustained if he were not to remain in his portfolio, and also why the public– private partnership vehicle is not being used more aggressively to promote higher levels of growth.
South Africa may not be that far away from a debt trap as many would believe, especially if the analyses of rating agencies are anything to go by.
is penciled in at -3.1% of GDP, therea er falling progressively to -2.6% in the 2019/2020 scal year. If growth in any of these periods were to be lower, the forecasts would in tandem also deteriorate, unless accompanied by changes in taxes (increases) and/ or expenditure (cuts). Interestingly, a trend has been established where the early part of these medium-term scal ratios are penciled in weaker, but the latter part
South Africa may not be that far away from a debt trap as many would believe, especially if the analyses of rating agencies are anything to go by. Less than a year ago, Fitch estimated that government debt was 51% of GDP. It further estimated that contingent loan liabilities covering the SOEs were another 11.5% of GDP, of which Eskom had drawn down some 5.5%. e magic number to focus on is
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