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S.A’s MTBPS seeks to contain budget deficit, slow debt accumulation, will it be enough to avoid a ratings downgrade

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Pravin Gordhan

Pravin Gordhan

South Africa’s Finance Minister Pravin Gordhan, who was fine-tuning his toughest Medium Term Budget Policy Statement (MTBPS) up until the last minute, called on South Africans in a press conference to “tighten whatever needs tightening and work like hell to achieve a common purpose” to grow the economy and create political stability to attract investments.

His MTBPS comes in an environment where S.A’s economic growth estimate for 2016 has been revised down to 0.5% from 0.9% (see table), revenue estimates are below 2016 budget projections, slowing household consumption and falling private-sector investment.

The MTBPS aimed to satisfy rating agencies and those hungry for free education and jobs – time will tell just how far it went.

Gordhan described his MTBPS as measured and aimed at balanced fiscal consolidation but warned that fiscal and monetary policy are not enough to place growth on a different trajectory.

For that he said, we need government and society to work together, urgent policy implementation, clarity on broadband and energy supply that is ahead of the growth curve, an unqualified focus on inclusive growth, and structural change.

The MTBPS released on Wednesday described its focus as avoiding a sharp contraction in expenditure and prioritising capital investment whilst stabilising national debt as a share of GDP.

It warned that consolidation measures proposed are likely to have some dampening effects on economic activity. “But over the medium term, a further loss of confidence and a ratings downgrade – which could prompt higher interest rates and large capital outflows – remain greater risks to the economy than the likely effects of fiscal consolidation”.


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