Avoiding junk status: Did Budget 2016/17 hit the spot?

Gosh! South Africans have become a negative lot.  What is wrong with us?

Some commentators couldn’t wait to get their demolition boots on and climb into the budget, saying ‘it didn’t cut deep enough!

They sound like Minnie-me’s of that miserable man, UK Chancellor George Osborn, the patron saint of Austerity.

The critics of yesterday’s SA National Budget Speech obviously were not paying attention. So we had better paint the story.

BS 1

In 2012 SA’s national debt outlook trajectory was increasing dramatically but was forecast to reduce by 2015. It didn’t. SA can be forgiven for that. Nobody recovered quickly as the economists said it would.

The revised projections of 2013 also didn’t materialize and by September 2014 the debt trajectory showed no end in sight. So Finance Minister Nene, started implementing austerity measures to at least level off the debt trajectory.

But predicting SA’s national debt trajectory, even in the medium term, is a tricky business. Even the IMF predictions were wrong.

BS 2

The October 2014 trajectory, calculated by the IMF, was enough to blow the mind. But, just 6 months later, by April 2015, it was looking a whole lot better. And it still is.

So, ‘ the slip’ was nothing like as bad as originally forecast in September/October 2014. Why?

BS 3

The decline in tax buoyancy ratios of 2009 frightened everyone into believing that economic growth and tax collections are integrally related. But things have turned out differently.  In short, South Africans all grumbled and consumer and business confidence dropped, but SA carried on with their favorite pastime, spending money we mostly haven’t got. Thus, even though growth rates slowed to below 1%, tax collections are still within R11 billion of target for 2015/16. And that’s not an unusual prediction on budget day. Its been R10bn or so below target on every budget day for the last 4 years.

In short, tax buoyancy ratios are not all they are cracked up to be.  Tax collections are not that bad and neither is SA’ national debt. SA can borrow a little bit.

So now we get the revised national debt trajectory at budget 2016/17.

BS 4

The debt trajectory has been allowed to increase a bit over the levels targeted in October 2014. But that’s not an act if desperation. Rather, things are going a bit better than most of us think. We can only hope that the suits at the rating agencies will give is credit for that.

Sometimes I get livid about the junk status threat. Ok, the President has made some awful blunders which haven’t helped at all but Nenegate in December 2015 was the low point.

“From the ashes a fire shall be woken, 
A light from the shadows shall spring; 
Renewed shall be the blade that was broken, 
The crownless again shall be king.”

 J.R.R. Tolkien,

The Fellowship of the Ring

 Pravin Gordhan is back. He is internationally recognized as one of the best in the business. And compromise with anything that is not the best standards of fiscal governance is just not going to happen on his watch.

The tax collection forecasts going are very realistic.  And fiscal consolidation expenditure cuts coupled with enforcement legislation should easily result in budgets being trimmed by R20 billion.

Not so bad! Yes, SA has embarked on the road to fiscal atonement. Isn’t this what the rating agencies are looking for?

The world applauds German Chancellor Angela Merkle for her humanity and opening Germany’s doors to a million refugees. And so we should.  However, SA has done a whole lot more than that since 2009. And the ship is still afloat with all 54 million passengers and a commodity based economy. SA hasn’t sunk into recession yet like Brazil and Venezuela.

Some say that downgrade to junk status is already priced into the markets. Given recoveries in exchange rates since December 2015 that could be a point. Others say that junk status for SA could create a humanitarian crisis in Southern Africa that would make the Syrian refugee look insignificant.

A rating is supposed to be an indicator to investors. But perhaps the rating agencies are now in a position that they are literally playing God with a junk status rating. This is just morally and socially wrong. Not even Pope Francis has that power. Nor would he want it.

It is time for the rating agencies and critics to cut South Africa some slack.  SA has come a long way since the December 2015 disaster. No matter who is President.

 

 

 

 

 


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