Economic situation likely to dictate MTBPS

Monday, October 26, 2009

Pretoria - The unfavourable economic situation is likely to dictate Finance Minister Pravin Gordhan's Medium Term Budget Policy Statement (MTBPS) on Tuesday.

The minister will released the statement in Parliament on Tuesday, with President Jacob Zuma in attendance.

Since taking over the reigns from Trevor Manuel in May this year, Gordhan has had to deal with unfavourable economic conditions and South Africa's first recession in 17 years.

Speaking to BuaNews on Monday Econometrix Treasury Management economist Russell Lamberti said Gordhan's statement would be dictated to by these circumstances.

He pointed out that Gordhan came in at a time that was profoundly different from that of the former minister who ran a tight ship but also had favourable conditions on his side.

Lamberti said looking ahead to the statement, he expects the minister to acknowledge the difficult fiscal conditions. "I think we'll see a more upbeat outlook for next year, however, I suspect the National Treasury will announce larger deficits and Gordhan will remain very much at the mercy of global conditions."

A key factor Lamberti would like to see the minister to talk to is the currency matter. There have been reports that government was considering "freezing" the local currency, a rumour that has since been squashed.

"I think the key focus from a financial market perspective will be how he addresses currency issues as well as how much parastatals will need to borrow in the years ahead."

Standard Bank senior economist Dr Johan Botha said that it was likely that revenue would be under pressure. "There are concerns on the revenue sides like personal income tax and company tax, revenue will be under pressure implying that the deficit will be greater."

He further added that this will imply that the deficit will be larger than the 3.8 percent deficit documented in the national budget. "We think it's going to be around 7 and 8 percent."

Both economists conceded that there was limited space to maneuver and that South Africa would have to sit out the recession.

Botha said because of this, a change to policy would create uncertainty.

Most Read