South Africa’s newly appointed Finance Minister Tito Mboweni has a tough balancing act to perform this week in presenting a medium-term budget policy statement that fends off credit rating downgrades and attracts new investment while keeping the electorate happy ahead of next year’s national vote.
Mboweni, appointed by President Cyril Ramaphosa earlier this month after former finance minister Nhlanhla Nene stepped down over his role in so-called “state capture”, will present his budget statement to parliament on Wednesday against the backdrop of an economy currently in a technical recession after two consecutive quarters of contraction.
The medium-term policy statement should provide clarity on how the government proposes to reprioritise scarce funds, stimulate economic growth and create jobs as announced in a stimulus package unveiled by Ramaphosa, economic analysts said.
Mboweni is likely to revise the 2018 economic growth forecast downwards from the 1.5% projected by the National Treasure in February.
The main opposition Democratic Alliance said Mboweni must deal with a “six-pack” of challenges and present a credible plan to boost economic growth to at least 3% through structural reforms to increase private sector investment while still holding the fiscal line by reviewing spending and stabilising national debt at or below 50% of GDP.
DA shadow minister of finance David Maynier said: “We are now in deep economic trouble, with ordinary people experiencing an income squeeze following tax increases and petrol price hikes, and with 9.6 million people who do not have jobs, or who have given up looking for jobs, in South Africa.”
The budget speech will be an opportunity for Mboweni, who was well respected in his previous role as central bank governor, to try and instil confidence and provide policy certainty as South Africa grapples with the fallout from allegations of widespread corruption under former president Jacob Zuma’s leadership.
The myriad of scandals have hobbled the operations of state-owned enterprises and undermined revenue collection, forcing the government to hike value-added-tax (VAT) by one percentage point, a risky move ahead of next year’s elections.
Hard-pressed South Africans will be looking to Mboweni to bolster their personal finances, job prospects, and the economy as a whole, audit firm PriceWaterhouseCoopers (PwC) said.
It said households would be keen to see the finance minister’s revised list of consumer goods to be exempt from VAT and hear the government’s plans to lower record-high fuel prices.
An independent panel has recommended adding white bread, school uniforms, sanitary products, and nappies to the list of zero-rated products.
“The National Treasury will need to weigh the benefit to the poor against the expected loss in VAT revenue,” PwC economist Christie Viljoen said.
“Minister Mboweni has inherited a precarious fiscal situation that will make it difficult to find money for these pledges while also keeping ratings agencies happy with regards to rising public debt.”
Fitch and S&P Global have in the last couple of years downgraded South Africa’s rating to sub-investment grade, questioning the government’s commitment to fiscal prudence. Moody’s could follow suit if Mboweni’s speech signals worsening debt metrics.
Staying the course of measured fiscal consolidation while trying to stimulate economic growth will prove a difficult task, First National Bank chief economist Mamello Matikinca said.
“For the most part, National Treasury has run out of headroom to raise taxes any further, and we expect the finance minister to stress that revenue growth must come from greater compliance among taxpayers and improved efficiencies at the revenue collection level,” she said.