CHIEF Economist at Capricorn Asset Management (CAM), Floris Bergh, has stated that a slippage is not as bad as analysts predicted it would for the current fiscal year, which ends March 2020, as the revenue of N$58.4 billion is still expected.
Commenting on the tabling of the mid-term budget review, Bergh stated that there is a downside risk to this estimate as Non-Mining Company taxes have not been re-estimated from the budgeted revenue.
During his tabling of the budget yesterday, the Minister of Finance, Calle Schlettwein, warned that the revenue outlook is characterised by a plethora of risks, which are tilted on the downside.
“The main risks to the revenue outlook is coming from the domestic macroeconomic risks, potential shocks on SACU revenue and external risks arising from the global economic, trade and financial environment. Expenditure, also, is still expected to be N$66.6bn – the same as budgeted,” he said.
Bergh explained that this means that the deficit remains at an estimated N$8.1bn, which is 4.1% of GDP.
“On the face of it, it therefore seems that we are on track with fiscal policy overall. We will have to see at budget time in March 2020 whether these expectations are met. The MoF typifies policy as follows: The Government will continue implementing the fiscal consolidation framework that is moderately paced to avoid a sudden withdrawal of fiscal support to the economy and the provision of basic services,” Bergh explained.
He further stated that the Ministry of Finance shows ample awareness of the funding challenges, indicating that the relief experienced from upping the domestic asset requirement to 45% has reached its limits.
Switch auctions will continue for the GC20, which matures on 15 April 2020, and will be started for the GC21, which will mature on 15 October 2021.
The JSE listed bond, the NAM02, matures on 29 June 2020 and the first Eurobond matures on 3 November 2021.
Bergh stated that treasury, therefore, have their work cut out for them, but the Debt management program seems manageable and the sale of Government’s stake in MTC will help quite a bit.
“The main risks remain, in our view the situation with the SOE’s. However, it appears that a tougher stance is being taken. Furthermore, in total, guarantees amounts to N$11.1bn or 5.6% of GDP, including Aircraft Lease, a much better position than the RSA where guarantees amount to 22% of GDP, including Eskom debt of R400bn, give or take,” he said, adding “Overall we are relieved at the absence of nasty surprises and the holding of the line – no tax hikes and no fiscal slippage. This means that Government revenue and spending should continue to decline as percentage of GDP as targeted. Let’s hope the ship is still on course in March 2020, because the sharp spike in debt of recent years needs be brought under control as a matter of urgency.”