Guest Blogger: A macroeconomic analysis of the Gordhan budget of 2016


The most urgent economic question has been and possibly is whether the RSA sovereign debt is going to be designated junk status. The Gordhan budget of 2016 demonstrates the willingness of the republic to repay its debt beyond any shadow of doubt. This has been demonstrated by a modest but positive economic growth rate at an average of 1.8% p.a. in the next 3 years coupled by a reduction in the budget deficit of half a percent over the next 3 years on average. This demonstration has certainly reduced the threat of a downgrade; however it has not done away with it completely. From the start, it was never cast on stone that RSA was to be downgraded to junk status. However it was on a fast and slippery slope towards that status and the budget has certainly placed some speed breaks on that.

Our economy is stalling and the risk of a recession is still a reality as espoused by the Worldbank indicators of 2015/16. As a currency, the rand seems to be oversold and undervalued. The Gordhan budget has failed to address these two key fundamentals as it has not brought forward adequate austerity measures which would be reflective of a significant policy change on the part of government. In the absence of such policy change -the combination of muted global growth, low business level confidence, drought and persistently low resource prices will result in South Africa continuing to lose its attraction as a destination for capital.

A very positive approach in the Gordhan budget is the realization that when considering raising additional revenue for the republic, tax is not the only solution. Some key parts of the solution in his budget include expenditure cuts of approximately R8 billion p.a. over 3 years on average, curbing the size of the civil service (although there is no clear plan for how this is going to be achieved), having a growing economy at 1.8% p.a. on average over 3 years and creating jobs. When it came to the numbers, the only accounted for increase in revenue of R18billion is underpinned on an increase and introduction in levies. Levies in essence are an indirect tax as they still result in the increase in the cost of living for everyone.

In conclusion the budget is factually a very reactional statement which is not indicative of a major economic policy changes by the government of the republic. It has been well crafted to say the right words, terms and figures to avoid the downgrading of our sovereign debt to junk status. It is indeed a missed opportunity because of its short-termism, hollow but clever statements and primarily its speculative nature.

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