All eyes will be focused on Finance Minister Pravin Ghordan on Thursday as he delivers the Mid-Term Budget Policy Statement.This is a statement of government’s expected revenue and planned spending over the next three years.
Ghordan will be under pressure to continue delivering on government’s social commitments. But he’ll also need to be mindful of the ratings agencies who’ve threatened that the country’s credit rating could be downgraded further.Government needs to spend on national priorities, like education, health and security. But it also needs to spend within its means. During his budget speech in February, Gordhan estimated that the budget deficit which represents the gap between government spending and revenue would be around 4.6% of GDP and that would come down to 3.0% by the 2014/2015 fiscal year.
But some analysts argue that’s increasingly looking unlikely. Econometrix Chief Economist Azar Jammine says: “I believe that our deficit and our debt will rise because economic growth will not turn out to be as high as what was previously forecast”.Recent sovereign credit downgrades by Standard & Poors and Moody’s mean Gordhan will need to go slow on any plans that could see that budget deficit rise. When this happens, so too does the public debt because government has to borrow money to fund the gap between its income and its expenditure.Analysts concede that the public wage bill – which accounts for 34% of government spending – will likely rise over the next couple of years, and they’re warning that their ranks should not grow too fast.Renaissance Capital Chief Economist Elna Moolman says: “We just cannot afford to have the same type of employment growth in the public sector in the next couple of years in the public sector, especially if like in the past it’s not been associated with a meaningful improvement in government service delivery”.It’s a matter of weeks before the ANC’s elective conference, which will also finalise a position on issues like nationalisation. Treasury slammed the notion raised by ratings agencies that it may have to succumb to political pressure to fund populist policies. Such a scenario would put long-term strain on the budget deficit.
– By Nompumelelo Siziba
