Can Manuel deliver a Budget which offers both assurance and insurance?

Finance Minister Manual may be feeling a tad more pressure than he usually does in the run-up to the unveiling of the National Budget. This year’s Budget could be the most important of the last few years, given the great deal of uneasiness about the future of the South African economy.

The electricity crisis, 400 basis points’ worth of interest rate increases and the uncertainty surrounding the change in the ruling party leadership have undermined consumer, business and investor confidence. The possibility of an US recession and the reality of high financial market volatility are added contributors to negative sentiment.

The 15% depreciation in the rand since mid-January is just a reflection of this uneasiness. Given this scenario, the Budget needs to achieve a delicate balance between reassuring the market and providing enough insurance against unexpected shocks to the economy.

The best course of action for Trevor Manual will be to avoid any dramatic response to the situation: the right long-term policies are in place and the Budget should contain just a few extra measures to promote energy efficiency and protect the economy from the energy crises.

On the other hand there are concerns about the efficiency of the public administration and the speed of policy implementation.

The overall Budget stance ought to remain neutral (with a bias toward cautiousness), to reduce the pressures on monetary policy. Any dramatic change of fiscal stance towards a more expansive position would be seen as a sign of policy weakness and could induce an even faster depreciation of the currency, with negative consequences for inflation and monetary policy.

In meeting these demands, Mr Manuel will be proving the degree of his pragmatism and wisdom.