South African Finance Minister Trevor Manuel will probably stick to his conservative fiscal stance next week, ignoring demands from African National Congress stalwarts for a populist budget ahead of elections in April.
Manuel, respected for steering the economy along a pro-business path over the past 13 years, looks set to focus more on measures to help South Africa ride out a global crisis rather than pleasing the ANC’s leftist allies, critical of previous budgets.
Manuel incurred the wrath of militant labour unions last year by unveiling plans that made clear he intended to press on with fiscal prudency, cutting public spending while reducing the corporate tax rate.
Analysts say the stakes are even higher in next week’s budget, as the ANC gears up for what could be a bruising battle in April against the Congress of the People.
The fledgling Cope is highly unlikely to win the election, but could reduce the ANC’s parliamentary majority to less than the two-thirds required to push through legislation without challenge.
In a sign that the ANC wants to use the budget to woo the electorate, local media this week quoted ANC secretary general Gwede Mantashe as saying Manuel should put money into priorities identified by the party in its election manifesto.
The ANC has vowed to pour resources into creating jobs, improving education and health and fighting crime, generally linked to grinding poverty among the black majority, 15 years after the end of white apartheid rule.
But Manuel has proved himself well able to resist such political pressure in the past, analysts said.
”I think Trevor Manuel has always been consistent with delivering the types of budgets that he thinks are appropriate and not necessarily for election purposes. He hasn’t been swayed by elections,” said Leon Myburgh sub-Saharan Africa specialist at Citigroup.
In his mid-term policy statement in October, Manuel said he had been ”stoically resistant of any electioneering budget”, despite shifting back to a deficit while pledging to spend towards cutting poverty.
In a move that may ease the pressure on Manuel to make tax cuts to help struggling consumers, the central bank on Thursday cut interest rates by a widely expected 100 basis points.
Retail sales have been falling and new vehicle sales plunging, while economic growth measured just 0,2% in the third quarter of 2008, a decade low.
Analyst say the global economic landscape has changed drastically since Manuel’s last policy statement, and that plans for the upcoming fiscal year will likely seek to provide a cushion against a global financial crisis that has left leading economies in recession.
”The world is changing. Certainly we expect that the deficit announcement, for instance, will look very different than the deficit from what was previewed … in October,” said Jeff Gable, head of economic research at Absa Capital.
”But that’s rather separate from ANC politicking. We see that in every country right now, whether there’s an election imminent or not. I would be surprised if you saw significant parts of the ANC manifesto appear in the February budget.”
The Treasury has forecast a budget deficit of 1,6% of GDP for 2009/10, still low for a emerging market, from a small surplus the previous two years.
Despite criticism of his policies from the left, Manuel still enjoys considerable support within the ANC, as shown by his name featuring high on a party list for parliament, a sign that he is likely to remain influential in Cabinet.
This would help calm nervous investors worried about a possible drastic policy shift in South Africa after the election.
Manuel could even use his budget statement next Wednesday to drive home the point that the current prudent fiscal stance has helped shield South Africa from the worst of the global economic meltdown so far, said Jac Laubscher, group Economist at Sanlam.
”He can be forgiven if he starts out on a self-congratulatory note, pointing out the validity of the cautious approach adopted in recent years and reminding his detractors of the timeliness of the introduction of the structural budget balance,” Laubscher said in a note.
”But perhaps the most important requirement … is to reassure the relevant parties of the parameters within which fiscal policy will be conducted in future, in view of the concern regarding policy continuity after the upcoming general election,” he said.
”There is a simple rule that can fruitfully be applied to South Africa’s fiscal management: if it ain’t broken, don’t fix it.” – Reuters