Why Budget 2017 was unusual

2017-03-09 18:18 - Carin Smith

Cape Town - Budget 2017 was unusual due to the tough economic environment in 2016 and SA narrowly having avoided going into recession, according to independent economist Sandra Gordon.

She was the guest speaker at the monthly networking forum of the Western Cape Business Opportunities Forum (WECBOF) on Wednesday evening.

"The slow SA economy has led to little revenue, which put a squeeze on Treasury. Ratings agencies are concerned that SA is building up debt so quickly and the country sits right on the line between being investment grade or junk," said Gordon.

"If SA is downgraded to junk status it will raise the the cost of borrowing. It can take up to seven years to get out of junk status. Budget 2017 was, therefore, so tight and constrained that the consensus is that SA won't be downgraded in the first half of 2017."

Treasury has indicated that the path SA is on at the moment is not sustainable. That leaves the question of how economic transformation could be achieved.

"Budget 2017 was more of a political vision. Resources are so limited that there is not much government can do for SMEs until the economy gets better," said Gordon.

"That is why I think it is not worth waiting for government to do something for SMEs."

At the same time, she said there is an improved economic outlook for 2017. This could mean that interest rates are cut later this year or early next year.

"Entrepreneurs should be aware of how things are changing," concluded Gordon.

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