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South Africa's Mboweni Must Revive Economy While Trimming Budget – BNN

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(Bloomberg) — South African Finance Minister Tito Mboweni will have to show commitment to curb spending and rein in debt in this week’s budget, while finding ways to revive an economy that probably contracted the most in nine decades last year.

Mboweni will present the government’s spending framework for the next three years on Wednesday, after the coronavirus pandemic ravaged Africa’s most-industrialized economy, increasing the strain on already stretched public finances and even forcing the ruling African National Congress to end its long-held resistance to borrowing from the International Monetary Fund.

While revenue collection for this fiscal year may overshoot the Treasury’s October estimate, the pandemic has raised pressure on state coffers. The government won’t reach its goal of achieving a primary budget surplus by 2025-26, according to sixty-five percent of economists surveyed by Bloomberg. The targeted positive balance is part of the active scenario of managing public finances, which include debt that’s projected to peak at 95.3% of gross domestic product in the 2026 fiscal year.

“In the absence of meaningful economic growth, South Africa’s fiscal strain will remain a reality for years to come,” said Elize Kruger, an independent economist.

The consolidated budget deficit is forecast reach 13.9% of GDP this fiscal year, according to the median estimate of 22 economists in a Bloomberg survey. That’s less than the Treasury’s October estimate, mainly due to better-than-expected tax collections rather than an improvement in the economic outlook. For 2021-22 the shortfall is now seen at 9.7% of GDP.

Read more: South Africa’s Upside Tax Surprise May Help Pay For Vaccines

What Bloomberg Economics Says:

“The biggest risk will remain the Treasury’s ability to implement the proposed wage savings of over 300 billion rand. The labor court vindicated the decision to freeze public-sector salaries last year. However, the decision has yet to be affirmed by the country’s highest court.

— Boingotlo Gasealahwe, Africa economist

For the full report, click here

While revenue is still expected to fall short of the 2020 budget forecasts, Mboweni no longer faces as much pressure to raise taxes in an economy the IMF sees expanding only 2.8% this year and 1.4% in 2022. The Treasury said last year that it plans to raise an additional 40 billion rand in revenue in the medium term, comprising 5 billion rand in 2021-22, 10 billion rand in 2022-23 and in 2023-24 and 15 billion rand in 2024-25.

Tax Increases

Of the economists surveyed, 70% expect Mboweni to announce tax increases. Those will probably come from excise duties on alcohol and tobacco products, fuel levies and by not adjusting tax brackets for inflation, rather than new measures such as a wealth or solidarity tax because that could further throttle the economy.

The “dire outlook necessitates a carefully calculated approach to governmental revenue generation,” Charles de Wet, a tax executive ENSAfrica, said in a note. “The minister is expected to prioritize economic growth and commercial stimulation during his budget speech by exercising restraint regarding taxation increases.”

The Treasury could reduce its weekly bond issuance by around 2 billion rand to show that it is serious about reducing the deficit and slowing debt accumulation, Nazmeera Moola and Adam Furlan of asset manager Ninety One Ltd. said in a note.

“Given the current large government cash balances, a continuation of the high levels of issuance would raise serious doubts about government’s commitment to further consolidation,” they said.

Read more: South Africa Treasury Likely To Maintain 2020-21 Bond-Sale Level

Officials including Mboweni have repeatedly warned that the country faces a sovereign debt crisis unless is takes urgent action. However, plans to reduce expenditure by about 300 billion rand over the next three fiscal years, mainly by paring a salary bill that’s surged by 51% since 2008, have drawn criticism from politically influential labor groups, civil society organizations and some opposition lawmakers.

Of 21 economists in a Bloomberg survey, 16 said the projected spending cuts will have to be revised down. Still, the Treasury may not change its spending outlook yet because there is no resolution on the wage-bill issue, said Peter Attard Montalto, head of capital markets research at Intellidex.

©2021 Bloomberg L.P.

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Canadian dollar moves to extend weekly win streak as oil rebounds

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Canadian dollar

The Canadian dollar strengthened against its U.S. counterpart on Friday and was on track for its seventh straight weekly gain as oil prices rose and domestic data added to evidence of robust economic growth in the first quarter.

Canadian factory sales rose 3.5% in March from February, led by the motor vehicle, petroleum and coal, and food product industries, while wholesale trade was up 2.8%, Statistics Canada said.

The price of oil, one of Canada‘s major exports, reversed some of the previous day’s sharp losses as stock markets strengthened, though gains were capped by the coronavirus situation in major oil consumer India and the restart of a fuel pipeline in the United States.

U.S. crude prices rose 1.2% to $64.61 a barrel, while the Canadian dollar was trading 0.6% higher at 1.2093 to the greenback, or 82.69 U.S. cents, moving back in reach of Wednesday’s 6-year peak at 1.2042.

For the week, the loonie was on track to gain 0.3%. It has climbed more than 5% since the start of the year, the biggest gain among G10 currencies, supported by surging commodity prices and a shift last month to a more hawkish stance by the Bank of Canada.

Still, BoC Governor Tiff Macklem said on Thursday if the currency continues to rise, it could create headwinds for exports and business investment as well as affecting monetary policy.

The U.S. dollar fell against a basket of major currencies, pressured by a recovery in risk appetite across markets after Federal Reserve officials helped calm concerns about a quick policy tightening in response to accelerating U.S. inflation.

Canadian government bond yields were lower across much of a flatter curve, with the 10-year down 2 basis points at 1.549%. On Thursday, it touched its highest intraday in eight weeks at 1.624%.

 

(Reporting by Fergal Smith; Editing by Nick Zieminski)

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Toronto Stock Exchange rises 1.21% to 19,366.69

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Toronto Stock Exchange

* The Toronto Stock Exchange‘s TSX rises 1.21 percent to 19,366.69

* Leading the index were SNC-Lavalin Group Inc <SNC.TO​>, up 16.0%, Village Farms International Inc​, up 9.8%, and Denison Mines Corp​, higher by 9.4%.

* Lagging shares were Aurora Cannabis Inc​​, down 7.2%, Centerra Gold Inc​, down 3.8%, and Canadian National Railway Co​, lower by 3.7%.

* On the TSX 194 issues rose and 35 fell as a 5.5-to-1 ratio favored advancers. There were 25 new highs and no new lows, with total volume of 225.7 million shares.

* The most heavily traded shares by volume were Enbridge Inc, Manulife Financial Corp and Cenovus Energy Inc.

* The TSX’s energy group rose 3.32 points, or 2.7%, while the financials sector climbed 4.80 points, or 1.3%.

* West Texas Intermediate crude futures rose 2.65%, or $1.69, to $65.51 a barrel. Brent crude  rose 2.68%, or $1.8, to $68.85 [O/R]

* The TSX is up 11.1% for the year.

This summary was machine generated May 14 at 21:03 GMT.

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Economy

U.S., Mexico, Canada to hold ‘robust’ talks on trade deal

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The United States, Mexico and Canada will next week hold their first formal talks on their continental trade deal, with particular focus on labor and environmental obligations, the U.S. government said on Friday.

Trade ministers from the three nations are set to meet virtually on Monday and Tuesday to discuss the U.S.-Mexico-Canada (USMCA) deal, which took effect in July 2020.

“The ministers will receive updates about work already underway to advance cooperation … and will hold robust discussions about USMCA’s landmark labor and environmental obligations,” the office of U.S. Trade Representative Katherine Tai said in a statement.

The United States is also reviewing tariffs which may be leading to inflation in the country, economic adviser Cecilia Rouse told reporters at the White House on Friday, a move that could affect hundreds of billions of dollars in trade.

The United States, testing provisions in the new deal aimed at strengthening Mexican unions, this week asked Mexico to investigate alleged abuses at a General Motors Co factory.

(Reporting by David Ljunggren; Editing by Hugh Lawson and Jonathan Oatis)

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