Gigaba's maiden budget can spark another downgrade, economist warns

2017-10-25 10:39 - Eugenie du Preez
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Cape Town - Finance Minister Malusi Gigaba’s mini budget definitely has the potential to lead to a ratings downgrade, Abdul Azeez Davids from Kagiso Asset Management told Fin24 on Tuesday.

"Clearly if one looks at the (budget) statement, it’s not just for now. It’s basically government's forecast for the next three years as well - and I think that the critical areas that we’re looking at are potential revenue shortfalls."

An important factor, according to Davids, is the expenditure and funding of state-owned enterprises (SOEs). "If there is any slippage on that side, I think there is a real risk of that (a downgrade) happening."

Turning to SOEs like Eskom and South African Airways, Davids said the issue is not just funding, but also the liquidity situation around these entities.

"So we think that there is a real risk that a lot more funding is required by these entities and aside from potential privatisation of state-owned assets, there is no real way to fund this, other than with tax collections."

He added that consumers have already been "battered to death through taxes", and there is "the real risk that growth undershoots again".

Confidence is the key ingredient Gigaba needs to kickstart growth, according to Davids.

"We’ve seen it with all economic indicators - from business confidence to consumer confidence. There is a massive lack of confidence and we all know why... investors in particular need to have a real sense that they can invest with confidence," Davids said.

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