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Surviving in Times of Economic Uncertainty

12 December 2016

The current South African economic environment is challenging, to say well the least. The economy has slowed, and concerns are being raised as to whether economic growth pick up or slow down, the looming credit rating downgrade, and following the tabling and subsequent withdrawal of fraud charges against the Finance Minister Pravin Gordhan, if he will still hold his position come February 2017’s budget speech. Although the charges were dropped, fears still loom that a higher political conspiracy is at play, adding to the already unstable economic environment.

Tax revenues have fallen short of expectations. In an effort to remedy this, spending must be cut and taxes raised. The Mid-term budget speech held in October 2016 was the last opportunity for Gordhan and South Africa to validate to credit ratings agencies that the country is making progress and should not be downgraded in December 2016. A lower rating signals a higher investment risk, which translates to a higher cost of borrowing for the country and increased capital outflows. With the budget deficit estimated to continue narrowing, higher taxes being indicated, and political instability, how likely is it that he succeeded?

The political context in which Gordhan presented his budget cannot be ignored. Political stability is vital in order to nurture investor confidence. It may be uncertain whether or not SA will be downgraded by the rating agencies. Yet with the contextof all that has been laid out by the Minister of Finance, it is likely that we have tough times ahead.

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