Guiding consumers since 2009

Has the Budget speech averted a downgrade?

By Danielle van Wyk

Yesterday’s budget speech has rallied up quite the conflicting reaction, as many dub the speech ‘nothing new’ while others are optimistic about the big focus on growth enhancing reforms. The question however is, was it enough to successfully avert a ratings downgrade?

“While it is a step in the right direction and has probably bought South Africa some time, the odds of a downgrade by at least one ratings agency in December 2016 remain high,” remarked FNB chief economist, Sizwe Nxedlana.

As predicted Treasury took to revising their growth expectation down from last year’s Medium Term Budget Policy Speech (MTBPS). This saw the growth rate for 2016 falling from the MTBPS figure of 1,7 % to what Treasury deems a more realistic 0,9% currently.

“Treasury remains relatively optimistic about the economic outlook compared to our expectations. Consumer inflation is expected to be above six percent over the next two years,” Nxedlana noted.

He went on to state: “While the proposed fiscal consolidation targets are ambitious, today’s effort was not sufficient to support a conclusion that a downgrade in December is unlikely.”
The rand reportedly started weakening 20 minutes into Gordhan's speech yesterday, leaving commentators speculating that investors were unhappy with the budget.

“However, it emerged that Moody's downgrade of Brazil to junk status was the main reason for the rand rout. The unit lost more than 2.5% of its value against the dollar to R15.62, from R15.23 before Gordhan delivered his Budget Speech,” reported Fin24.

Nxedlana went on to explain that their reasoning behind their notion was that ‘we are probably too late to implement and display evidence of growth enhancing structural reforms in time to save an investment grade rating from all three major agencies.’

A step in the right direction?

There was, however, evidence in the speech that South Africa has taken a step for the better, which FNB noted would at least prevent them from further hits.

Despite the more aggressive and stringent approach to fiscal consolidation, Nxedlana highlighted a few factors that could delay the plan for stabilisation of governmental debt below the 50% mark:

- “Growth is likely to be weaker than the Treasury’s forecasts leading to lower than expected tax revenue collection,” Nxedlana stated.

- State-owned entities (SOEs) may need to utilise the option of state funding/ guarantees in the immediate term to allow them to execute the necessary reforms, while remaining afloat.

- “Third, while the Treasury has either met or outperformed previous expenditure ceilings, the proposed further reduction in the ceiling targets the wage bill which government has previously failed to contain within set boundaries,” explained Nxedlana.

In addition to concerns about the absence of detail around the revenue measures set to accomplish the smaller deficits predicted for the coming three years, Moody’s has also termed the revised growth forecasts as ‘slightly optimistic.’ This, as it comes in slightly above their original prediction of ‘0,5 for 2016 and 1,5 for 2017’, reported Fin24.

“Finally, while the tone of the Budget Speech and Review suggested a commitment to pursuing supply side reforms aimed at improving business confidence and aiding growth, we have heard this before,” remarked Nxedlana. 

Recent Articles

Featured How to earn passive income through dividends on your investments

If you invest your money wisely, you will be able to watch it grow beyond inflation. This is a far better option than simply leaving your money in a general savings account. However, did you know that you could also receive interest or dividend payments on your investments?

This is why you should ask your medical scheme for an annual claims statement

Even with a strict budget, a lot can happen in a year and you may lose track of your medical expenses, especially the costs that you cover out-of-pocket. It’s important to regularly assess your medical aid or hospital plan contribution.

Make rewards programmes work for you

Many retailers and financial service providers have introduced rewards programmes, or loyalty programmes, to retain their customers and make them feel appreciated. These programmes can help you save money, but you have to know how to make them work for you.

 

Top 5 things to consider before taking on further credit

Nowadays, the process of attaining credit has become easier and faster. Although applying for, and receiving cash on the same day may excite potential lenders, it doesn’t come without serious repercussions if you’re not wise. 

Deals

Get 25% off your stay at Monte Vista Boutique Hotel

Price: Available on request
When: Until 31 January 2021
Where: Montagu

Luxury Spa Package Special for R449 at Aurora

Price: R449
When: Until 31 January 2021
Where: Cape Town

Oyster and Champagne Special at Blowfish Restaurant | JustMoney

Price: R129
When: Daily
Where: Cape Town


Latest Guide

Guide to debt rehabilitation solutions