While there was a hint of cautious optimism over the avoidance of a potential downgrade after the 2016 Budget Speech, South Africa would remain hostage to growth impediments that would hinder its investment future.
Much pressure had been placed on the much-anticipated Budget Speech, delivered by Finance Minister Pravin Gordhan this week, to avert South Africa’s possible downgrade to junk status by ratings agencies.
“This was a budget where tough choices had to be made in tough times,” said National Treasury deputy director-general Ismail Momoniat said on Friday.
Speaking at the advisory firm KPMG’s yearly Budget 2016 briefing, he indicated that the “strong measures” outlined in this week’s budget sent out a strong message.
“We had to do more than before,” he added, pointing to stronger fiscal consolidation than planned in the Medium-Term Budget Policy Statement, or “mini budget”, presented in October last year.
The 2016 Budget revealed more aggressive cost-cutting measures and rationalisation, generating a rise in revenue without extra undue personal tax increases to further inhibit consumer spending power, which was currently the main driving force behind South Africa’s growth.
Research, advisory and stakeholder engagement firm Makhaya Advisory CEO and economist Trudi Makhaya said that it was possible for South Africa to avoid a downgrade, as the Budget was not immediately dismissed by ratings agencies.
She believed that the Budget had touched on all the “right themes” and attempted to meet a complex range of goals, such as stabilising government finances, for which there was a genuine attempt; securing future funds; maintaining social spending; improving governance and restructuring government; and maintaining the nation’s investment grade rating.
However, Momoniat questioned whether the Budget was tough enough to address the issue of growth, adding that the Budget alone was not enough to set South Africa on an upward growth path.
“We need to be growth-hungry,” he said, stating that South Africa needed people who could add to the growth of the gross domestic product, as opposed to the rand-seeking environment in which the country currently found itself.
Makhaya said the Budget did enough to facilitate growth for the most part, with development in terms of infrastructure and human capital "a step in the right direction", along with private-sector investment and entrepreneurship support, which was mostly also on the right path.
However, she concluded that the Budget was just the first step.