RSS Feeds RSS | Views on ITInews | contact | terms of use | privacy 

Editorial Categories:


Forthcoming Events:

No Upcoming Events

Available Recruitment:

No Vacancies Listed...

Save by getting insurance quotes

Your Editor, Brent WilsonInforming Consumers and Financial Advisors since 1988 | Click Here to Advertise
Press Offices > Investment Managers

Sanlam Investment Management
Press Office Feature : Pravin Gordhan aims to repeat Trevor Manuel's feat - in a tough environment

Company: Sanlam Investment Management
Author:Arthur Kamp
Email:[email protected]
Posted:27 Feb 2014

 Email this article Comment on this Article  Print this article

Leaves Government with no room to manoeuvre in the event of any unexpected downturn in the economy

Minister Pravin Gordhan delivered a tough Budget bang in line with the Medium Term Budget Policy Statement he read in October last year.

In recent years, the Minister has stuck closely to his expenditure budgets, while the revenue overrun in 2013/14 allowed the him to show a smaller Budget deficit for 2013/14 (4.0% of GDP versus the 4.2% projected in October last year).

The main budget deficit narrows to 2.8% of GDP by 2016/17.

Concomitantly, the primary budget balance (revenue less non-interest spending) narrows from -1.8% of GDP in 2013/14 to -0.3% in 2016/17 - enough to stabilise the gross loan debt ratio at 48.3% of GDP.

The numbers, importantly, rely on continued expenditure restraint, with real non-interest spending increasing at just 1.9% per year over the medium term.

Expenditure declines relative to GDP over the period - failing which the debt ratio is likely to continue rising.

Also, we need a sustained firm business cycle upswing to support revenue (else we are likely to get higher taxes).

Note, the level of debt is projected to increase close to the previous high recorded in the mid-1990s and leaves Government with no room to manoeuvre in the event of any unexpected downturn in the economy.

Similar to Trevor Manuel, who was Minister of Finance from 1996 to 2009, Minister Gordhan will need to not only stabilise, but also lower the debt level in time to create "fiscal space".

Trevor Manuel reduced the gross loan debt ratio from 50% of GDP in mid-1997 to below 30% of GDP by mid-2008. He achieved this by, initially, applying material expenditure restraint, notably by constraining the wage bill.

Consolidated spending by Government and the provinces on compensation declined from close to 13% of GDP in the mid-1990s to less than 10% of GDP by early 2007.

Once the debt ratio had been reduced, which lowered the interest burden and freed up resources, Minister Manuel accelerated Government expenditure.

But, Trevor Manuel operated in a buoyant growth environment - especially from 2000 (although it is important to note his prudent policies contributed to a favourable investment environment and GDP growth).

Indeed, following modest economic growth from 1997 to 1999, real GDP growth averaged more than 4% from 2000 to 2008. Growth was driven by strong fixed investment spending (especially from 2003) amidst robust productivity gains.

The current business cycle upswing, however, has been based on consumption spending (including Government consumption, which is at its highest level in history at more than 22% of GDP). Also, productivity growth is moderate.

Meanwhile, the marginal rate of return on capital is too low to ignite a robust private sector investment upswing.

This is not an environment in which we should anticipate a robust, sustained economic upswing with any degree of confidence.

Still, the Minister has delivered what he can through a Budget that focuses on expenditure restraint (including wage growth restraint).

The limited room to manoeuvre is painfully visible in social grants spending, where the Minister shows no real growth in expenditure - especially considering inflation rates tend to be higher for the poor when food prices are rising.

The emphasis on measures to boost small business development is especially welcome. The small business sector is, after all, South Africa's best shot at boosting much-needed employment growth.

This includes support for venture capital companies by easing the rules pertaining to accessing foreign capital. Economies grow through a process of creative destruction.

Venture capital companies can put new ideas into practice in support of this.

Overall, the bottom line is that an economy where the currency has depreciated sharply against the backdrop of a relatively wide government budget deficit, reflected in a large current account deficit, must tighten policy.

That's what the Minister has aimed to do with this Budget.

Arthur Kamp is an economist at Sanlam Investments

There are no comments at this stage. Be the first to comment!
Please Login To Comment On an Article - Click here To Login

ITInews invites comments at the foot of each of its articles in which readers can respond freely - anonymously if they wish - to various topical issues and industry debates. However, comments submitted by readers that are defamatory or deemed, by the editors, to be racist or obscene will be deleted from the database. Furthermore, ITInews's editor would like to caution potential posters on its websites that while it welcomes robust debate, it will not hesitate to make the IP addresses of the authors of such defamatory statements available to the authorities, in the event of a court order compelling them to do so.

Get car, home, life and business insurance quotes in 3 easy steps

Sanlam Investment Management

Join us today

More from Sanlam Investment Management
All about debt stabilisation and a social compact
Will we avert sub-investment grade status on our sovereign debt?
Retail Distribution Review: well-run practices have ‘little to fear’
May restrict the supply of financial advice to low and mid-income earners
Tsunami of regulatory change impacts on stakeholders throughout the financial services industry
Addressing savings inefficiencies and deficiencies in modern economies
Evolution of financial advice
An ill-thought through remuneration model could result in an ‘advice gap’
The Power of Patience: Think again before buying that shiny new bicycle
It is human nature for us to want instant gratification
2014: Investment managers must seize opportunities as 'fed speak' turns to 'fed action'
Three trends that South African investment managers can leverage over the next few years
Commentary on ASISA quarter two unit trust statistics from
Candice Paine, head of retail at Sanlam Investment Management voices her concerns
Investing to make your dreams a reality
Nimble, cost effective, high return investments that offer good returns and value for money
Institutional investors lose some confidence in the market
In marked contrast, confidence among financial planners remained largely unchanged
Highest international rating for two SA funds
"...not setting out to beat the index, or to compete with other fund managers."

Archived Articles featuring this company ...

Insurance Quotes

Car Insurance Quotes
Household Insurance Quotes
Business Insurance Quotes
Funeral Insurance Quotes
Life Insurance Quotes

Read the InsuranceQuotes Blog
ITM Website Design Cape Town
Copyright © 2005 - 2015 ITInews Online Publications (Pty) Ltd. All rights reserved Insurance Times & Investments Online and ITInews. ..::ISSN 1995-1256::.. No part of the materials including graphics or logos, available in this Web site may be copied, photocopied, reproduced, translated or reduced to any electronic medium or machine-readable form, in whole or in part, without specific permission from ITInews Online Publications (Pty) Ltd. Distribution for commercial purposes is prohibited.