Gigaba in `Hard Place’ With South Africa’s $2.9 Billion Tax Hole

JOHANNESBURG (Capital Markets in Africa) – South African Finance Minister Malusi Gigaba faces a gaping budget hole — and will have to consider cutting spending, raising taxes and selling state assets if he wants to avoid further ratings downgrades. 

The economy he oversees is hampered by a deteriorating growth outlook, partly stemming from a battle for control of the ruling party that’s stoked political uncertainty and deterred hiring and investment. Gigaba will outline policy changes in his first mid-term budget speech on Wednesday at a time when economists estimate he is confronting a 40 billion-rand ($2.9 billion) revenue gap.

“We are entering a very dangerous phase in our budgetary process,” said Lumkile Mondi, an economics lecturer at the University of the Witwatersrand in Johannesburg. “It will be extremely difficult to stick to expenditure ceilings and deficit targets. There will be push towards moving things off balance sheet. Gigaba is in a very, very hard place and he knows it.”

While the minister is encountering political pressure to allocate money to the national airline and other cash-strapped state companies, a failure to keep government debt and the fiscal deficit in check would put South Africa at risk of having its local debt lowered to non-investment grade — a move that may trigger massive fund outflows. S&P Global Ratings and Fitch Ratings Ltd. cut the nation’s foreign-currency debt to junk in April after President Jacob Zuma appointed Gigaba to his post in place of the respected Pravin Gordhan.

Source: Bloomberg Business News