Budget 2018: S.A’s Economic Risks Still Elevated, Even with Green Shoots In Sight

PUBLISHED: Wed, 21 Feb 2018 14:09:52 GMT


By Aviwe Mtila

While South Africa’s economic and political woes are facing prospects of a new dawn with its recent change in leadership, a lot of uncertainty still lies ahead.

As the country’s Finance Minister, Malusi Gigaba, tabled his maiden budget speech in parliament on Wednesday, rating agencies, investors and the world are watching closely like a teacher with a red pen in hand.

The decisions and direction South Africa takes going forward will be crucial in steering the country out of its ailing economy in to the road of growth and prosperity.

South Africa’s Budget 2018 noted the following as risks to the economic and fiscal outlook:

  • The recovery in economic growth is not yet broad-based. Much depends on continued improvements in political and policy certainty, and a supportive global environment. Tax buoyancy, which declined over the past two years, may not increase as quickly as projected.
  • Talks on a new public-service wage agreement are in progress. An agreement locking in salary increases that exceed consumer price index inflation would make expenditure limits difficult to achieve.
  • While decisive action by government to strengthen governance at Eskom has staved off the likelihood of near-term default, the financial positions of the power utility and several other large entities pose risks to the economy and the fiscus.
  • The costs associated with fee-free higher education and training are uncertain. The Department of Higher Education and Training will need to ensure that its plans are aligned with allocations.
  • A sub-investment downgrade for local- and foreign-currency debt by Moody’s would result in South Africa’s exclusion from the Citi World Government Bond Index, triggering a sell-off of South African debt. This would raise future borrowing and debt-service costs.

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