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The upcoming Medium-Term Budget Policy Statement in October will be a critical indicator of how government is planning to deal with prevailing challenges resulting in low growth and crippling SA's economy, according to an economist at Old Mutual.
Finance Minister Tito Mboweni will in October present the MTBPS - commonly referred to as the mini-budget - amid shrinking growth prospects and growing pressure exerted by the country’s state-owned enterprises on the fiscus.
Old Mutual Investment Group Chief Economist, Johann Els, said on Wednesday ratings agencies such as Moody’s would be pay close attention to the statement, as it could inform their decision on the country’s sovereign rating.
He said a departure would be necessary from the pattern seen in recent years, as government would be expected to demonstrate how it planned to implement growth-stimulating policies and curb spending.
"We can’t continue in the pattern of the last few years," he said, adding a key factor would be the proposed management of expenditure cuts.
National Treasury is seeking cuts of 5% for 2020-21, and 6% and 7% for the next two years. SA has not registered a primary surplus since 2009.
Firm assurances
"Despite a dismal deficit picture, a confirmed expenditure cutting plan will be a positive move for the economy," said Els. The worsening cost of power utility Eskom's financial predicament has also been flagged as a critical factor impacting public funds, with Moody’s vice-president for infrastructure, Joanna Fic, on Tuesday citing uncertainty about when the government's rescue plan will be implemented, as Fin24 reported.
Eskom was in the February Budget allocated R23bn for each of the next three years, with an additional allocation of R59bn over the next two years."If the Eskom plan to be announced later this month is half decent, a more transparent plan is still needed.
"We need firm assurances. If the Eskom and medium-term budget issues can be properly addressed, combined with the generally positively received Economic plan from Treasury, then we might escape a Moody’s downgrade for now," said Els.
