11 October 2017
CEEMEA desknote GlobalMarkets.bnpparibas
South Africa: Buoyancy blues
Finance Minister Malusi Gigaba with his biggest challenge since taking office in March.
and burdensome state-owned enterprises, to lead to more delays to deficit consolidation.
too optimistic in light of the weak outlook for growth, wages and corporate profitability.
economic conditions, though revenue stability from personal income tax is showing cracks.
should see the main budget deficit deteriorating by 0.6pp in FY17/18 to 4.1% of GDP.
in November, we think further ratings downgrades are inevitable by mid-2018.
On 25 October, South Africaˉs Finance Minister Malusi Gigaba will deliver his first medium-term
budget policy statement (MTBPS) since he took the helm of the Treasury following President
Jacob Zumaˉs highly controversial cabinet reshuffle in March.
Minister Gigaba will have his work cut out for him in presenting a credible budget in amid
softening growth, inflation and revenue collections, along with more capital injections to
embattled state-owned entities, such as South African Airways. In addition, ratings agencies
have already made clear their stance that the future of the investment-grade rating on the
countryˉs local-currency sovereign debt rests on Mr Gigabaˉs ability to stick broadly to the status
quo set by his predecessor at the time of Februaryˉs budget.
His job is likely to be made all the more challenging by recent media reports speculating that the
Treasuryˉs leadership structure has been a victim of state captureˉ (ie, improper private-sector
influence; see, for example, Fin24, 1 October). Mr Gigaba has denied the allegations.
Tough decisions will have to be made if the minister is to silence his critics. His first challenge
will be to deal with the concerns surrounding the underperformance of tax collections in the first
five months of the current FY17/18 fiscal year. Cumulative tax revenue growth of just 3.4% y/y
was recorded between April and August this year, half the rate of the same period in FY16/17,
which itself was a steep drop on April¨CAugust FY15/16 (Chart 1). This lacklustre revenue
performance has come from weaker collections of personal income tax (PIT), custom duties,
fuel levies and excise duties; collections of corporate income tax (CIT) remained broadly stable,
while gro
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