Tag: tito mboweni

South Africa’s economy is in bad shape

Source: FNB

The Medium-Term Budget Policy Statement (MTBPS) is an update by the National Treasury of the South African government’s financial health relative to what was proposed in the main Budget Review tabled in February.

In his opening remarks Finance Minister Tito Mboweni presented an Aloe ferox to the House, which he highlighted had survived a bitter cold winter during which the ground had become hard.

The Minister likened this plant to the toil that the average South African has been enduring through these challenging economic times.

While the 2019 MTBPS provided a reasonable framework given the challenging circumstances, Minister Mboweni emphasised that the timely implementation of much-needed structural reform was the silver bullet that would provide the fundamental support required for the South African economy to grow meaningfully and sustainably.

In sum, the MTBPS highlighted that chronically poor economic growth is putting pressure on tax revenue collection, while expenditure pressures continue to mount as the government continues to offer assistance to ailing state-owned entities (especially Eskom). Indeed, the combination of these factors has put the government between a rock and a hard place, as sovereign debt continues to rise at increasingly unsustainable levels.

Highlights of the budget:

  • In line with expectations, there was a material deterioration in the fiscal deficit. The estimate for the main budget balance widened to an average of -6.2% of GDP in 2019/20, compared to the -4.7% estimate from the 2019 Budget Review.
  • There were no announcements of tax increases. The Treasury acknowledged that tax measures implemented in recent years have not translated into stronger economic growth. However, given the severity of revenue under-collection, they will still consider additional tax measures in the 2020 Budget Review.
  • Encouragingly, the expenditure ceiling (which excludes Eskom) was lowered for this year and the next two years.

Key takeaways:

  • The reaction of the rand has been largely negative, with the R186 bond yield spiking by roughly 16bps from yesterday’s close on release of the budget.
  • A wider fiscal deficit combined with a higher debt-to-GDP ratio through the forecast horizon will be credit negative for Moody’s sovereign rating decision. However, we remain of the view that South Africa will maintain its investment grade rating status, although the possibility of being placed on a negative outlook has increased.
  • Equity prices have also been adversely affected, with the JSE All Share Index falling by approximately 0.3% from yesterday’s close. In all, much needed structural reforms that lend support to lifting potential economic growth and consequently equity prices will need to be announced in the February 2020 Budget Review.

By Sam Mkokeli, Mike Cohen, Paul Vecchiatto and Amogelang Mbatha for Fin24/Bloomberg 

South African President Cyril Ramaphosa appointed former central bank Governor Tito Mboweni as his finance minister on Tuesday, replacing Nhlanhla Nene, who lied about his meetings with the Guptas.

Mboweni, the nation’s fifth finance chief in less than three years, will have to oversee an economy that’s fallen into recession and help Ramaphosa rebuild confidence battered by almost nine years of mismanagement under former President Jacob Zuma. He must also reassure investors and credit-rating companies of credible plans to stabilise debt and revive growth in the mid-term budget on October 24.

“In the wake of Mr. Nene’s resignation, I have decided to appoint Mr. Tito Mboweni as minister of finance with immediate effect,” Ramaphosa said. “Mr. Mboweni takes on this responsibility at a very critical time for our economy.”

Mboweni, who trained as an economist, served as head of the South African Reserve Bank for a decade until 2009 and for four years as labor minister in former President Nelson Mandela’s cabinet. His major achievement at the central bank was building the nation’s foreign-exchange reserves to almost $40 billion from less than $10 billion.

The rand gained 0.6% to R14.76/$ by 16:51 in Johannesburg, reversing an earlier decline of as much as 1.4%. Yields on benchmark 2026 government bonds fell six basis points to 9.22%.

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