National Treasury’s action plan may not be enough – economists

14th July 2017 By: Natasha Odendaal - Creamer Media Deputy Editor Online

National Treasury’s action plan may not be enough – economists

Finance Minister Malusi Gigaba

Industry does not view Finance Minister Malusi Gigaba’s new 14-point plan as likely to stimulate the growth South Africa desperately needs. Rather, economists are viewing it as a group of administrative measures that will only move to stabilise the battered economy.

Released on Thursday, Gigaba’s plan mapped out measures aimed at reversing South Africa’s downward recessionary economy, helping to break the country out of its low-growth trap.

“The acid test for Gigaba’s 14-point action plan is whether it will boost confidence in the economy by producing real outcomes,” noted North-West University School of Business and Governance economist Professor Raymond Parsons.

Commenting post the action plan’s release, Parsons explained that the plan recognised that tough decisions needed to made to mitigate the serious economic and political headwinds facing South Africa; however, the new action plan was not a policy statement.

“The real test of fiscal management will remain to be seen in the Medium-Term Budget Policy Statement (MTBPS) later this year as to whether any fiscal shocks emerge, especially from oversight issues on State-owned enterprises, such as Eskom and South African Airways. Fiscal discipline has been promised,” Parsons said.

The firm timelines for implementation and the assignment of tasks to specific Ministers was a promising positive step by government, which was now beginning to engage with what needed to be done if the economy was to be turned around and South Africa was to break out of its low-growth trap, he added.

However, prior to the outcomes of the MTBPS in October, it is not possible to determine whether the plan will be adequate to restore confidence.

“Ultimately, the success of the latest action plan will not rest on technicalities. It will instead depend on whether Gigaba's message overall can rebuild investor and business confidence, as well as reduce the policy uncertainty that is bedevilling South Africa's economic performance, given other political factors,” said Parsons.

However, Nomura International economist Peter Attard-Montalto was less optimistic about the plan, saying that there were no real pro-growth reforms and no “rabbit in a hat” moment to satisfy investors and markets.

“[Rather than structural reforms that could really kick start growth], what was offered up were measures that should help stabilise the economy at this very weak place by providing a floor under sentiment, but not provide upside to per capita income growth, in our view,” he said in a statement.

The only new inputs were of firm timelines and delineated responsibilities – key positive factors that had “elevated” the plan somewhat.

The plan itself, “like the ones offered last year by former Finance Minister Pravin Gordhan”, capped the downside of growth and sentiment, but did not provide a meaningful path to higher positive per capita income growth in the medium or long run.

“The question is, will ratings agencies be satisfied by this? We think the answer is no. The issues in this plan have already been discussed with them. We don’t think they will find anything new here,” Attard-Montalto commented.

“However, ratings agencies – we think Moody’s more than S&P – may give more benefit of the doubt and shift back timelines, watching for implementation. Ultimately, we think the growth needle not moving will be enough to secure further downgrades,” he said.

Nomura maintained its growth outlook of 0.2% for this year.