Pravin Gordhan. Picture: REUTERS/MIKE HUTCHINGS
Pravin Gordhan. Picture: REUTERS/MIKE HUTCHINGS

THE 2016 Budget to be tabled in Parliament on Wednesday is expected to seek at all costs to avoid further sovereign credit rating downgrades‚ notably from Fitch and S&P‚ who have South Africa on a hard currency last rung sovereign rating for investment grade.

That’s according to Investec economic Kamilla Kaplan who notes the rating agencies have highlighted concerns about fiscal sustainability for an economy which has shown a marked downward growth trajectory because of failing to prioritise economic growth.

"Expectations of softer global economic activity and broad based downward revisions to South Africa’s growth outlook (by the South African Reserve Bank and IMF among others) will cause the Treasury to lower its own GDP expectations‚" Ms Kaplan believes.

She adds that the headline budget deficit for 2015/16 is unlikely to come out much better than the -4.3% of GDP forecast.

"The deteriorated economic growth outlook means that the fiscal deficit in 2016/17 is unlikely to be projected below -3.0% of GDP‚ although such a moderate trajectory is needed to appease the rating agencies."

Apart from Finance Minister Pravin Gordhan’s Budget speech‚ this week also sees the release of producer price inflation (PPI) data and the quarterly labour force survey.

According to Ms Kaplan‚ producer price inflation is forecast to have lifted to 6.4% year on year (y/y) in January‚ from 4.8% y/y in December and‚ from an average of 3.6% in 2015.

"Low statistical base factors explain some of this expected boost in PPI inflation. These stem from the substantial petrol price cuts towards the end of 2014 and in the first months of 2015."

Ms Kaplan says the Quarterly Labour Force Survey is likely to confirm that the unemployment rate remained in the vicinity of the 25% mark in fourth quarter of last year and yielded an average of 25.5% for the full year.

"The International Labour Organisation forecasts South Africa’s unemployment rate to increase to 25.7% in 2016. The prevailing labour market dynamics are a function of the weak economic growth prospects and to some extent‚ labour market rigidities‚" she points out.

On Thursday the National Energy Regulator (Nersa) will decide on Eskom’s application for a 16.6% tariff increase this year‚ instead of the 8.0% approved under the Multi-Year Price Determination framework. Specifically‚ Eskom is seeking compensation for an under-recovery of costs‚ of R22.8bn‚ in the 2013/14 financial year‚ as part of the regulatory clearing account.

But Kaplan believes Nersa may not necessarily grant Eskom the full compensation‚ as was the case last year when just R7.8bn was approved‚ of the R18.4bn initially sought by Eskom.

Tmg Digital