South Africa Budget Head Resigns Amid Education-Funding Spat

JOHANNESBURG (Capital Markets in Africa) – The head of South Africa’s budget office, Michael Sachs, resigned amid speculation President Jacob Zuma is bypassing the National Treasury to implement plans for free university education.

Sachs, who headed the office since November 2013, is the third senior Treasury official to leave since Zuma appointed Malusi Gigaba to replace Pravin Gordhanas finance minister in March. Sachs won’t be leaving immediately, “to ensure a proper handover to another senior official and to allow for a smooth transition with as little interruption to the work of the budget office as possible,” the Pretoria-based department said Monday in an emailed statement.

Yields on benchmark government bonds due December 2026 jumped 11 basis points to 9.47 percent, the highest on a closing basis since May 2016. The rand slumped 0.9 percent to 14.5072 per dollar by 6:09 p.m. in Johannesburg, the weakest level in more than a year.

“Sachs’s resignation is another serious blow to credibility,” Rashaad Tayob, a portfolio manager at Abax Investments, which oversees about 90 billion rand ($1.3 billion) in assets, said by email. “The team we are used to dealing with is in the process of being hollowed out.”

Lungisa Fuzile asked to leave his position as director-general of the National Treasury in April, a year before his contract expired. The widely respected Fuzile said he had made the request before Zuma fired Gordhan, a move that led two ratings companies to downgrade the nation’s debt to junk on concern about policy continuity and political instability. Andrew Donaldson, who had been with the Treasury for more than 20 years, took early retirement in the same month.

Wider Deficits
In its Oct. 25 medium-term budget statement, the National Treasury projected higher debt and wider fiscal deficits over the next three years. Moody’s Investors Service said the so-called mini-budget, the first by Gigaba, was credit-negative for the country’s debt assessment as it veers off the path of fiscal consolidation.

“It’s definitely concerning that more and more of the good skills are leaving Treasury,” Elize Kruger, an economist at NKC African Economics, said by phone. “We’ve seen the numbers as to how dire our fiscal scenario is, and any further indication that the situation could deteriorate is concerning.”

Business Day newspaper reported earlier that Sachs resigned last week after Zuma’s office ordered the National Treasury to find additional money to fund a plan for free university education next year. Investors are concerned the proposal, which ignores fiscal targets set in the budget, will add to government debt and hasten a rating downgrade to junk for the country’s local-currency credit.

The move to a new structure that will see the presidency oversee expenditure could violate the constitution because “parliament carries the ultimate responsibility for approving the budget, not the presidency,” lobby group Business Leadership South Africa said in an emailed statement. “This latest development raises further concerns over the politicization of the Treasury and budget process and sends the wrong signal to the people of South Africa.”

Source: Bloomberg Business News