Realising the bind between fiscal consolidation and slow growth, Treasury labels it “a measured consolidation”. The impact of slower growth on tax revenues is substantial, but fortunately Treasury has managed to keep spending under control. Although this continues the task of fiscal consolidation, the goalposts have again been shifted.
The jury is out whether this MTBPS (mid-term budget policy statement) will be enough to avert a ratings downgrade in December. The question of whether they did enough will be a close call. They are certainly trying hard, but we have seen no further improvement in other issues such as SOEs with no further announcements to strengthen governance, plus Treasury seems to have caved on the nuclear issues, stating that it will work with the department of energy and Eskom, with the power utility taking the lead on nuclear. This will raise debt guarantees for Eskom even further in future years.
The bottom line is that this is a relatively solid MTBPS given the pressures facing Treasury. A tighter stance might have been too damaging to the economy. It remains to be seen how this will influence the country’s ratings. Ratings agencies do not only look at the budget, but also economic growth. S&P are also waiting for announcements regarding a national minimum wage and a secret strike ballot.
Highlights