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Rand not taking the bait on Mboweni's budget

Finance Minister Tito Mboweni

Finance Minister Tito Mboweni

25th October 2018

By: African News Agency

  

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The medium-term budget seems to have done little to allay business and consumer fears as the rand was not convinced on Thursday by reforms announced by government.

Finance minister Tito Mboweni on Wednesday delivered the medium-term budget policy statement (MTBPS) outlining that government was committed to fiscal sustainability, the expenditure ceiling and debt stabilisation without introducing fiscal measures that could limit growth.

Mboweni said the expenditure ceiling remains intact as funds will be reprioritised to manage spending pressures and support the economic recovery plan, allowing for real non-interest spending growth of 1.9 percent per year over the medium term.

He also reiterated South Africa's growth forecast revision down from 1.5 percent to 0.7 percent as emerging markets continue to feel the pinch of global slow economic growth.

The rand had remained firm on Wednesday afternoon but weakened and lost more than half a percent, trading at 1$/14.46 by midday on Thursday.

Bianca Botes, corporate manager at financial advisory firm Peregrine Treasury Solutions, said one of the biggest concerns for ratings agencies and markets was the fact that the budget deficit was expected to remain between 4 and 4.4 percent of GDP.

"With global interest rates on the rise, government’s growing debt burden threatens to cripple the fiscus, allowing less room for expenditure on key structural economic transformation measures," Botes said.

"On a more positive note, however, government’s spending ceiling has been preserved, speaking to Treasury’s commitment to ensuring responsible spending."

Botes said another important issue raised in the MTBPS was the issue of delays in VAT refunds.

Mboweni announced that R20-million in VAT backlogs will be cleared immediately, and while this will ease small business cash constraints, it will also place additional strain on South African Revenue Service and the fiscus.

Botes said overall, the budget remained extremely constrained under the weight of severe economic pressures.

"We are of the opinion, however, that both President Cyril Ramaphosa and Minister Mboweni are the right people for the job, and that the country and parliament needs to give them room to work," Botes said.

"The year ahead will once again be a tough one economically for South Africa, but as long as the right policies continue to be put into action, there is still light at the end of the tunnel."

Edited by African News Agency

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