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Gordhan’s maiden effort – experts reactSouth Africa’s new Minister of Finance Pravin Gordhan had his maiden big day in Parliament yesterday with the Medium-term Budget Policy Statement (MTBPS) and introduction to the National Assembly of the Adjustments Appropriation Bill. Perhaps Sanlam’s group economist says it best: It is “probably as good as one could expect under the circumstances."
In this first-ever Special Edition of the Leadership Intelligence Bulletin, we attempt to give our readers a quick overview of the MTBPS, and top financial institutions and a political analyst share their insights with us.
As could have been expected, the global recession has left a decisive mark on the MTBPS and the adjustments introduced to this year's February budget.
There is broad consensus that the minister has come through his baptism of fire well. He has avoided political controversies and ideological land mines – at least for now.
But, there are also signs for the keen observer that under the surface, the waters may not be as calm as it appears at the moment. Several observers have picked up on problems stemming from the pressures created by wage inflation in the public sector.
This is a clear indication that the MTBPS was not completely unaffected by the tensions within the governing alliance. The minister has removed any doubt that he and his department are in charge of macro-economic policy – for the moment. That does not mean that all the battles over economic policy direction are something of the past.
Not all experts share his view of where the budget deficit will turn in the medium or longer term. The minister’s forecast for 2009/10 is a deficit of 7.6%, while Investec’s Annabel Bishop sees it going to 8.3%.
For most observers, the recent application for a 45% annual increase in Eskom’s tariffs over the next three years cast a shadow over the picture painted by the minister. Particularly in the light of the fact that there were clears signs in the MTBPS that the National Treasury is supporting the Eskom application.
The inflationary impact of the increases, if implemented, will be severe. There is also a real risk of increased taxes, particularly indirect taxation via instruments such as the implementation of the envisaged National Health Insurance. The combined effect will retard recovery in consumer spending and thus the economy at large.
There is plenty to cheer about for the start made by Minister Gordhan in his career as main custodian of the nation's purse. There can be applause for the assurances about continued financial discipline, relaxation of exchange controls and attempts to put a lid on the strengthening of the rand.
What remains, however, is that the budget deficit will balloon to a 40-year peak, economic recovery in South Africa will lag behind global trends, and will not come without pain.
For full speach please visit Leadership
Piet Coetzer, Editor
