An appalling excuse for a mini-budget


I wasn’t expecting much from Malusi Gigaba’s maiden MTBPS yesterday and I wasn’t disappointed. It was an appalling excuse for a mini-budget and a far cry from the deftly-crafted exercises of his predecessor, Pravin Gordhan. Many observers are heaping praise on Gigaba, referring to the MTBPS as a “call to action” and a “wake up call”.

In that vein, it reminds me somewhat of former Eskom CEO Jacob Maroga’s dire warnings about power outages in late 2007. Having been given a hospital pass by his predecessor Thulani Gcabashe, Maroga instinctively knew there was something rotten in the state of Eskom and alerted the nation to the precarious state of the utility. But, like Gigaba yesterday, he offered nothing in the way of a plan to rescue the utility in the form of a short, medium or long-term plan.

The likelihood of a further and far more serious ratings downgrade now appears inevitable; the only question being whether it will be before or after the ANC’s elective conference in December.

Gigaba’s acknowledgement that growth will fall far short of Treasury’s 1.3% forecast from February wasn’t exactly rocket science, as most economists had trimmed their forecasts to well below 1% months ago. More revealing – and troubling – were his forecasts of the budget deficit and the country’s revised debt:GDP.

The deficit should be declining, not increasing at this juncture and the realisation that it is forecast to increase significantly from current levels will not sit well with the ratings agencies. Neither will the forecast of debt:GDP ballooning out to over 60% in the next 3 years. We often forget that this figure does not include the debt of parastatals; factoring this in takes total government debt:GDP to around 75%.

This is horrific for a developing country; combined with the likelihood of a further ratings downgrade and a concomitant rise in interest rates, debt-servicing costs will become increasingly onerous over the next few years. And that scenario doesn’t even take into account the gradually increasing nature of interest rates around the world.
Gigaba has proven to be a dogmatic minister in all his various government positions. At Home Affairs, he doggedly clung on to the requirement for unabridged birth certificates to be produced by foreigners arriving with minors at SA’s international airports. Even when it was pointed out to him that this requirement was killing our tourist industry, he steadfastly refused to budge until the bitter end.

Likewise with SAA. He will not come to terms with the harsh realization that the airline has had its day and is no longer salvageable in its current form. He insists on throwing good money after bad.

The one ray of light that can possibly be taken from the MTBPS was Gigaba’s acknowledgement that SA cannot afford a nuclear build. I wonder how well this assertion will go down with Number 1?

Chris Gilmour is an investment analyst.

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