Mboweni to stick close to Feb budget

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South Africa’s new finance minister Tito Mboweni will stick closely next week to previous budget forecasts for the coming two fiscal years, with only slight slippages due to poor revenues, economists predicted in a Reuters poll.

The forecast for this fiscal year’s deficit is 0.2 percentage point bigger at 3.8 percent of GDP, the poll showed. Mboweni will tweak next year’s estimate in his budget review on Oct. 24 but reiterate February’s call for a fall to 3.5 percent in 2020/21, the economists predicted.

This time last year, then-Treasury chief Malusi Gigaba painted a shocking picture of a 50.8 billion rand ($3.6 billion) shortfall in revenues for the year ending last March.

He was more hopeful in his February statement although official data showed the economy unexpectedly slipped into recession earlier this year.

“There is very likely to be some slippage amid weaker growth, 30 billion rand more for the public sector wage bill. The question is how significant the slippage will be,” said Hugo Pienaar, economist at the Bureau for Economic Research.

Not much has improved since South Africa inaugurated President Cyril Ramaphosa in February. Two finance ministers have left and economic growth is now forecast at 0.8 percent this year, down from 1.4 percent expected when he took office.

The latest forecast is unchanged from a September poll.

To plug revenue shortfalls, value-added tax (VAT) was raised by Gigaba in February’s budget to 15 percent, a move that has put consumers under significant financial strain.

“With a new Finance Minister (Mboweni) for the second time this year, October’s mini-Budget will be keenly watched, but will likely deliver a similar path to the Budget released at the start of the year,” said Annabel Bishop, chief economist at Investec.

Ramaphosa appointed former central bank governor Mboweni as finance minister on Tuesday, replacing Nhlanhla Nene who admitted to having meetings with the business family at the centre of alleged corruption.

Economists said the budget review next Wednesday was likely to have been signed off before Mboweni was appointed and will probably expand on Ramaphosa’s reform plans, including re-prioritising 50 billion rand of public spending to boost economic growth and create jobs.

Consumer inflation is predicted to average 4.7 percent this year and 5.4 percent next, while the South African Reserve Bank’s repo rate is expected to be lifted to 25 basis points to 6.75 percent in either January or March.

The repo rate is then expected to be stable for the rest of 2019 and raised to 7.00 percent in 2020.