Budget 2023
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Political noise could undermine credible mini budget – Goldman Sachs

Cape Town – While a credible mini budget could please rating agencies seeking tighter fiscal discipline, continued political infighting within the ANC is still cause for concern, according to Goldman Sachs.

Finance Minister Pravin Gordhan is set to deliver his mini budget speech on Wednesday in Parliament, where #feesmustfall students will once again be protesting outside.

In an economic research report by Goldman Sachs this week, it said that while a credible mini budget will be credit-positive, current market concerns continue to centre on the future leadership of the ministry, which will be key to implementation of the fiscal plans.

“The mini budget is a very important moment for emphasising fiscal consolidation,” Goldman Sachs sub-Saharan Africa MD Colin Coleman told Fin24 this week. “We have confidence the minister will put forward a credible plan.

READ: Mini budget to test pillars of government philosophy

“From my interaction with the rating agencies, which occurred in the days before Minister Gordhan being charged, they were receptive to and constructive about the current progress on the ongoing structural reform programme driven jointly by business and government,” he said. “These efforts are given credit by the rating agencies. The mini budget will be carefully watched for progress on fiscal consolidation.

“We are making progress on key issues such as removing obstacles to investment, and labour reforms,” he said. “We are confident if we deliver further evidence of economic progress and temper the political temperature and noise, then we may be on safe ground.”

He was referring to the noise created by the Hawks and the National Prosecuting Authority over charges that appear weak and politically motivated.

Rating agency Standard & Poor’s will announce its sovereign credit review for South Africa on December 2. It has placed South Africa one notch above junk status and in June warned that further political uncertainty could cause a downgrade to junk status.

Goldman Sachs research expects to see only a slightly wider deficit for 2016/17 than the 3.2% projection published in February’s 2016 national budget.

This deficit will occur due to weaker growth and lower inflation than what was projected earlier, according to a report by Andrew Matheny, senior economist at Goldman Sachs.

“We see little risk of significant fiscal slippage in the 2017/18 financial year or beyond, where we expect to see continued fiscal consolidation to a deficit that is below a sustainable 3% of GDP,” said Matheny.

He believes the ongoing fiscal tightening pace, which is projected to accelerate, will remain a continued drag on growth.

READ: Goldman Sachs boss: CEOs support for Gordhan not about one person

* Visit our Budget Special for all the budget news and in-depth analysis.

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