The finance minister doesn’t have the political backing for the really hard choices available to him
Minister of finance Tito Mboweni presents the medium-term budget policy statement in the National Assembly on October 30 2019. Picture: ESA ALEXANDER/SUNDAY TIMES
On the other hand, SA’s bond markets do not show a sign of panic though the country still has much higher yields than its emerging-market peers, some of which are already in subinvestment grade. The resilience may well be an indication that investors have already resigned themselves to the government not being able to produce a budget that moves the needle much in terms of dealing with the country’s fiscal situation and dire economic growth outlook.
To achieve a main budget primary balance — revenue matching non-interest expenditure — Mboweni proposed spending cuts of R150bn over three years. With little room for more tax increases, the government then highlighted the need to reduce the public sector wage bill, which takes 35c of every rand it spends, and come up with a sustainable plan for state-owned enterprises to reduce future transfers.
So markets are braced for higher deficits above 6% of GDP. While it might sound counterintuitive, the relative lack of optimism might work in Mboweni’s favour. Any piece of good news on spending is likely to please investors and might even nudge markets higher.
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