Unpacking Mid-term budget outcomes

Finance Minister Pravin Gordhan recently presented South Africa's 2016 Medium-Term Budget Policy Statement, leading to a postmortem analysis by experts. Luendren Pillay, Peter Attard Montalto, and Mike Schussler shared their insights on the budget outcomes, focusing on key issues such as the budget deficit, growth prospects, and shifting fiscal goals. While Pillay commended the shift towards capital formation from short-term expenditure, Schussler raised concerns about the persistent budget deficit above 3% and the government's reliance on tax increases rather than spending cuts. He emphasized the need for government to reduce spending and address the rising debt-to-GDP ratio from its current 45%. Schussler also highlighted the challenges posed by increasing government wages and the burden of state-owned enterprise bailouts on taxpayers. Montalto echoed these concerns, questioning the government's commitment to fiscal consolidation and warning of rising debt levels. He emphasized the lack of structural reforms in the budget and predicted downgrades from rating agencies such as S&P and Fitch due to the shifting fiscal goals. The experts also discussed the impact on retirement reforms and the need for more savings and long-term investments in South Africa's economy. The discussion touched on the importance of small and medium-sized enterprises (SMEs) as drivers of economic growth and the government's role in supporting their development. While some progress has been made, such as the creation of a sovereign innovation fund, concerns remain about the lack of concrete measures to boost SMEs and address issues like timely payments to small businesses. The panelists also highlighted the importance of government unity and effective leadership in driving economic growth and maintaining investor confidence. Montalto emphasized the need for clear long-term growth strategies and policy certainty to attract investments and sustain economic progress. The experts agreed that while South Africa talks a good game, more concrete actions and structural reforms are needed to address the country's economic challenges and uncertainties.