South Africa’s Gigaba faces credibility test in maiden budget speech

South Africa’s Finance Minister Malusi Gigaba faces a credibility test on Wednesday when he delivers his inaugural budget speech to outline spending plans and economic growth forecasts, which will provide an insight into his fiscal stance.

Photo: GovernmentZa

Gigaba’s medium-term budget policy statement (MTBPS) will be made amid sluggish economic growth and a politically charged environment following allegations of corruption and influence-peddling in government, which have unnerved investors.

Rating firms are concerned about political jostling ahead of the African National Congress (ANC) conference in December to elect a new party leader to succeed President Jacob Zuma, who has battled several scandals including corruption allegations.

Whoever the ANC picks is likely to take over from Zuma as South Africa’s leader in 2019 when a national election is held.

Gigaba, who has held other key ministerial posts including home affairs and seems to be favoured by Zuma, was appointed to lead the Treasury in March, replacing the fiscally-prudent Pravin Gordhan.

Economists expect him to address concerns over low revenues when he announces spending priorities for the next three years.

A Reuters poll found poor tax receipts could push the 2017/18 budget deficit forecast to 3.9 percent of GDP from an estimate of 3.1 percent in February.

“After the cabinet reshuffle in March, 25 October will be the first major outing for Finance Minister Gigaba and will remove much uncertainty surrounding his fiscal world view,” Nomura analyst Peter Attard Montalto said.

“We do not envisage a blow out in the budget, but credibility will likely be tested if ‘anonymous’ revenue hikes are leaned on too much and growth forecasts are over-egged.”

Following his appointment, Gigaba got a sceptical welcome on financial markets on fears that budget discipline would falter. Rating agencies downgraded South African debt.

BNP Paribas South Africa economist Jeff Schultz said Gigaba “will have his work cut out” to present a credible budget.

“Ratings agencies have already made clear their stance that the future of the investment-grade rating on the country’s local-currency sovereign debt rests on Mr Gigaba’s ability to stick broadly to the status quo set by his predecessor at the time of February’s budget,” Schultz said.

South Africa emerged from a recession in the second quarter but growth remains weak, with the central bank projecting 2017 GDP growth of 0.6 percent.


Fitch and S&P Global Ratings rate South African foreign-currency debt in sub-investment, or “junk”, territory. But only Fitch has the country’s local-currency debt in junk.

Moody’s rates both the foreign and local currency debt a notch above speculative grade.

S&P and Moody’s are scheduled to review South Africa in November. Fitch has not published its review calendar for South Africa.

Focus will also be on how Gigaba plans to bolster financial support to struggling state-owned companies such as South African Airways (SAA), which have been highlighted by the rating agencies as one of the problems facing the economy.

Last month the Treasury provided SAA with a second bailout for the year, drawing criticism from the opposition parties.

Editing by James Macharia and Richard Balmforth

Related Content

#MTBPS2018: Public servants’ wages balloon, but headcount is not to blame

The wage bill remains the single largest component of expenditure.

SA’s #MTBPS2018: These are the tax changes government is warning of

No mention of VAT-free chicken.

#MTBPS2018: SARS withheld tax refunds under former Commissioner Moyane, these are the consequences…

#MTBPS2018 reveals dire consequences of former Commissioner Tom Moyane’s regime.

Expectations for policy change ahead of finmin Mboweni’s MTBPS address

There could be anything from increased vat to zero rated chicken. The much anticipated budget policy speech will be delivered tomorrow. CNBC Africa correspondent Thasami Soobyah has more.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

Rwandan entrepreneurs treated to Covid-19 business survival boot camp

Access to Finance Rwanda in partnership with the African Management institute, the Private Sector Federation and others, has launched a new webinar series dubbed, ‘The Business Survival Bootcamp’, through their website, SME Response Clinic. The program is designed to help entrepreneurs navigate the unique challenges that have presented themselves as a result of the Covid-19 pandemic and is slated to begin next week. Head of Programs at AFR, Jean Bosco Iyacu joins CNBC Africa for more.

How can Africa’s private equity firms weather the COVID-19 storm?

East Africa's share of private equity transactions has slowly been rising over the years, but this growth momentum has now been disrupted by the Covid-19 pandemic. What will it take for private equity firms in the region to weather the Covid-19 storm and bounce back? David Owino, Managing Partner at Ascent Capital joins CNBC Africa for more.

RDO’s Mugwaneza on the need to invest in post-harvest agriculture technology

Rwanda’s agriculture sector employs 80 per cent of the population and contributes 33 per cent to her GDP growth. Now, with Covid-19, many farmers have incurred losses due to difficulties in the market and agriculture players have reiterated the need for investing in post-harvest agriculture technologies. Diana Mugwaneza, Programs Officer at Rwanda Development Organization, joins CNBC Africa for more.

PMA: CBN to roll over T-bills worth N59.4bn

The Central Bank is expected to roll over maturing treasury bills worth 60 billion naira in today’s Primary Market Auction. Gbemisola Bello-Aromire, Fixed Income Dealer joins CNBC Africa to discuss sentiments in Nigeria’s fixed income and FX markets....

Trending Now

Why A V-Shaped Recovery Is Unlikely: Mark Zandi

Moody’s Analytics Chief Economist Mark Zandi says investors are too optimistic about a quick economic rebound from the coronavirus pandemic. He explains what policymakers should do to boost the recovery and discusses longer-term changes in the econ

Abel Sithole appointed as CEO of South Africa’s PIC

On Wednesday, South African Finance Minister Tito Mboweni announced the appointment of Abel Sithole as the Chief Executive Officer of the Public Investment Corporation (PIC) and Executive Director on the Board of Directors.

91-year-old business titan’s mission to raise R108mn to feed the hungry

The old saying, “Age ain’t nothing but a number” has never been more true for 91-year-old business veteran Solly Krok. The entrepreneur who built the Gold Reef City casino, South Africa’s only Apartheid Museum and events facility Summer Place is not done yet. His latest business venture involves putting his legs to the test. Solly plans to walk 91 km to raise over a million rand to fund hunger and food security in South Africa, made worse by Covid-19.

Kenyan government under fire over coronavirus quarantine centres

Kenya’s government is facing growing criticism over quarantine centres it set up to curb the spread of the coronavirus, with witnesses saying some are squalid and expose residents to the risk of catching COVID-19.
- Advertisement -