Latest news with #NorthWestUniversityBusinessSchool
IOL News
30-06-2025
- Business
- IOL News
Slight easing in policy uncertainty, but economic landscape remains challenging
The North West University Policy 2Q 2025 Uncertainty Index (PUI) released on Monday indicated that the index eased to 75.9 compared to its record high of 78.6 (baseline 50) in 1Q 2025 but still remained in negative territory. Image: File The North West University Policy Uncertainty Index (PUI) for the second quarter of 2025, released last week, has indicated a slight easing, dropping to 75.9 from a record high of 78.6 in the first quarter of 2025. However, this figure still reflected a landscape fraught with economic uncertainty as it remained well below the baseline level of 50. Professor Raymond Parsons, an economist at the North West University Business School, commented on the index's modest decline, framing it as a response to both internal and external factors impacting South Africa's economy. Externally, while the global economic outlook continues to be unstable, Parsons said there has been a measure of relief on the trade front, particularly as the US administration has put a hold on most tariff hikes until July 9. This delay hinges on ongoing negotiations that could further influence international trade dynamics. 'The downward revision of various global economic growth outlooks therefore stems from a convergence of geopolitical risks, elevated economic uncertainty consequent on 'Trumpanomics' and erratic tariff decisions, and a tangible repricing of risks in financial markets generally,' he said. Specifically, international organisations such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have recently downgraded their growth forecasts for most major economies, including the United States. The only exception appears to be the European Union, which is still expected to see modest growth. Domestically, South Africa is heading into the second half of 2025 with a mix of economic signals. On one hand, recent quarters have shown evidence of lower inflation and a potential easing of interest rates. Parsons said should the inflation outlook stabilise, there may be room for another modest reduction in borrowing costs. Additionally, he said there was hope that South Africa could exit the Financial Action Task Force's (FATF) grey list by the end of 2025, which would further lower borrowing costs. 'There is the possibility of another modest cut in borrowing costs later in the year. There is also now the prospect that SA may be off the FAFT's grey list by the end of 2025, in which case borrowing costs will be further lowered for SA,' he said. However, Parsons cautioned that the positive indicators are offset by significant negative elements. In particular, he noted that the country experienced a disappointing GDP growth of just 0.1% in the first quarter of the year, coupled with downgrades of growth projections by both the National Treasury and the South African Reserve Bank (Sarb). Elevated unemployment rates and muted high-frequency data exacerbate these challenges. Parsons said that at the policy level, the most important development in the second quarter which is necessary to promote certainty was probably the eventual finalisation and acceptance by Parliament of a 'pragmatic' third 2025/26 Budget, but without the controversial VAT increase. 'However, if the various key parameters in the Budget are not met, future risks to fiscal sustainability remain,' he said. Parsons urged that the National Government's agenda for a 3% GDP growth target in the medium term requires a significant boost to ensure that the economy's tailwinds can overcome the prevailing headwinds in the years to come. 'A strategic pivot in growth policy is needed to create the extra economic buffers required to deal with external shocks,' he said. 'The GNU's policy agenda for a 3% GDP growth target in the medium term therefore now urgently needs an impulse, a jolt, an acceleration, so that the tailwinds in the economy outweigh the headwinds in 2025 and beyond.' BUSINESS REPORT
IOL News
27-04-2025
- Business
- IOL News
Business sector warns of ongoing fiscal challenges after VAT hike reversal
Finance minister Enoch Godongwana was forced to postpone his initial Budget Speech in February after Members of Parliament took issue with the proposed 2% Value Added Tax (VAT) increase. South Africa's business sector has cautiously welcomed the scrapping of the proposed 0.5 percentage points increase in the value-added tax (VAT) as a crucial relief for consumers, the country's fiscal position remained severely strained. However, the business industry said that the government would have to find alternative measures to raise enough revenue to plug the national budget deficit amidst rising debt-servicing costs and other national expenditure priorities. This comes as the National Treasury on Thursday announced that Finance Minister Enoch Godongwana will no longer be increasing the VAT from 15 to 15.5% from 1 May, which was proposed in the National Budget to plug the R58 billion fiscal deficit. North West University Business School economist, Prof Raymond Parsons, said a rise in VAT brought welcome relief and certainty to business and consumers, and to that extent is confidence-building. However, Parsons said this did not mean that fiscally South Africa was out of the woods. 'Future risks to fiscal policy remain. Successfully managing these now depends on a credible fiscal strategy 'to balance the books' being embodied in the third budget to be presented shortly by the Treasury to Parliament,' Parsons said. Treasury said the decision to forgo the increase followed extensive consultations with political parties, and careful consideration of the recommendations of the parliamentary committees. 'By not increasing VAT, estimated revenue will fall short by around R75bn over the medium-term,' Treasury said. 'The decision not to increase VAT means that the measures to cushion lower income households against the potential negative impact of the rate increase now need to be withdrawn and other expenditure decisions revisited. To offset the unavoidable expenditure adjustments, any additional revenue collected by SARS may be considered for this purpose going forward." Boipelo Ndimande, chief financial officer at Consult by Momentum, said that the decision to reverse the proposed VAT increase brought welcome short-term relief. "However, this postpones rather than resolves the estimated R75bn revenue gap," Ndimande said. "As the government looks to revise spending or explore alternative ways to boost revenue, it's clear that difficult decisions still lie ahead—and South Africans may yet feel the impact elsewhere." As it stands, government debt is projected to stabilize at 75.5% of GDP in 2025/26, a necessary step to address burgeoning debt-service costs, which are expected to peak at 21.7% of revenue. This year, debt-service costs have already surged to R233.1bn, reflecting a 5.8% increase from the previous year. The South African Chamber of Commerce and Industry (Sacci) said whilst this was a positive move, it was by no means a resolution of the bigger problem with the country's finances. Sacci president, Alan Mukoki, said the fiscal situation was not sustainable but appreciated the difficulty Godongwana was facing in balancing his revenue and expenditure options. "We still have a serious problem with how to deal with the budget and, in particular, the deteriorating debt servicing costs to revenue," Mukoki said. "We do not underestimate the complexity of the problem. This is no longer about the political parties or Government of National Unity (GNU). This is South Africa's problem that will require all key stakeholders to spend more time looking for solutions." The National Automobile Dealers' Association (NADA) said although the country continued to face many headwinds, these signs pointed to improving economic stability and greater certainty. NADA chairperson Brandon Cohen said the decision on VAT provided a solid foundation to shift focus towards driving inclusive economic growth, creating opportunities, and rebuilding confidence in the economy. "NADA believes that policy consistency and a stable economic environment are essential to restoring confidence across the value chain – from manufacturers and dealers to business and consumers," Cohen said. Linked to the reversal of the VAT increase is the withdrawal of the Godongwana's decision to expand the basket of VAT zero-rated food items to ease the burden of food costs on the poor and the vulnerable. In his budget statement last month, Godongwana proposed expanding the basket of VAT zero-rated food items to include canned beans and peas, dairy liquid blends and certain organ meats (offal) from sheep, pigs, goats and poultry. Zinhle Tyikwe, CEO for the Consumer Goods Council of South Africa (CGCSA), said this was very concerning. "Our members have and continue to find ways of ensuring that basic food items are sold at competitive prices, aware of the impact of food costs on their consumers, particularly the poor and disadvantaged," Tyikwe said. "Expanding the basket of VAT zero-rated food items would have been beneficial to consumers." BUSINESS REPORT
