President Cyril Ramaphosa is to brief parliament on efforts to boost economic growth and tackle the nation’s crisis-level unemployment rate just weeks after the National Treasury asked government departments to cut their budgets.
The Treasury has proposed trimming spending by 5% in 2020, and 6% and 7% for the following two years, in its medium-term expenditure framework guidelines, according to Business Day newspaper. They were distributed to departments to guide their preparation for their budget proposals.
It comes after an expanded bailout for struggling power utility Eskom, appeals for support from other state companies, weak economic growth and declining tax revenue prompted calls for urgent action. The economy contracted the most in a decade in the first quarter and the jobless rate climbed to 29%.
While this is the first sign that the government is heeding calls for action, analysts remain cautious.
Should the cuts materialise it would “send a strong signal about government’s commitment to fiscal consolidation” and would be viewed positively by markets and credit ratings agencies, said Elna Moolman, an economist at Standard Bank Group.
Retaining the country’s last investment-grade credit rating by Moody‘s Investors Service depends on how government approaches the fiscal deficit and financial troubles of state-owned companies.
The rand was 0.5% weaker at 15.25 against the dollar at 8:45 am in Johannesburg and government bond yields were little moved.
“If the budget cuts become a reality, further downgrades will likely be postponed,” said Per Hammarlund, chief emerging-markets strategist at SEB AB in Stockholm. “However, there is a lot more work to be done especially with the state-owned enterprises, which implies that investors will continue to fret over potential downgrades.”
The proposal marks the start of the budget negotiation process, Johannesburg-based Business Day reported.
Ramaphosa will speak at 2 pm in Parliament during his quarterly question time with lawmakers.
© 2019 Bloomberg L.P.