The week ahead


The week ahead

Published Date: 2017-10-24 | Source: INCE|Community | Author: Chris Gilmour

The week ahead

SARB governor Lesetja Kganyago said last week he believed that none of the three main credit rating agencies would downgrade South Africa's sovereign ratings at their reviews in late November. The governor and finance minister Malusi Gigaba met representatives of the ratings agencies on the sidelines of the IMF/World Bank meeting in Washington earlier in the month.

The ECB meets to discuss its Asset Purchase Programme next week and is likely to announce a longer nine-month extension of the programme, perhaps at a slower pace of EUR30bn/month. Nevertheless, this will still be perceived positively by financial markets.

Tue 24 Oct sees the release of South Africa's Leading Indicator for Aug, while September's Producer Price Index (PPI) is released on Thu 26 Oct.

Finance minister Malusi Gigaba will present his inaugural Medium Term Budget Policy Statement (MTBPS) on Wed 25 Oct at 14:00. It's an unenviable task and he will be largely straightjacketed in terms of what he can achieve. While SA is out of recession, he is now facing a major revenue deficit, perhaps of the order of R50bn for the current fiscal year. Watch out for indications of possible tax increases in the main national budget in Feb 2018.

Observers will be paying close attention to how Gigaba will deal with pressing issues such as SAA and other state-owned enterprises' funding, the potential Russian nuclear deal, the increasingly-delayed National Health Insurance and of course the highly sensitive free education issue.

The ratings agencies are unlikely to do anything in response to the MTBPS, preferring rather to wait for the ANC's elective conference from 16 to 20 Dec (if indeed it happens at all) before acting on any possible downgrades. Some observers have even suggested that the ratings agencies will wait until after the Feb budget before doing anything.

The market doesn't have high expectations of Gigaba's MTBPS and they are unlikely to be disappointed. There was a great deal of fanfare ahead of his last major presentation in July when he set out his 14-point plan but this was a damp squib. The state of the SA economy is such that mere tinkering at the margin will have little or no impact on the ratings agencies or anyone else for that matter. Bold and decisive action is required but I for one won't be holding my breath in anticipation of that happening on Wednesday.

Chris Gilmour in the community

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