Finance committee worried about ‘overestimated’ growth projections by Treasury
The Treasury needs to propose effective measures to mitigate the likelihood of fiscal risks materialising and affecting the broader economy, the committee says
Parliament’s finance committee says the Treasury’s overestimation of GDP growth forecasts will negatively affect the fiscal framework.
The committee said this in a report on the fiscal framework, which was outlined in the medium-term budget policy statement (MTBPS) tabled in Parliament in October by finance minister Tito Mboweni.
The committee, chaired by Yunus Carrim, adopted the report on Tuesday, after public hearings on the budget statement.
The Treasury has revised its growth forecast for 2018 to 0.7%, down from the 1.5% projected in the February budget. It has defended its forecasting saying in a briefing to the finance committees last week that it was not overly optimistic or pessimistic relative to other forecasters.
“Several studies have found National Treasury forecasts to be on a par with, or better than market projections,” acting deputy director-general in the budget office Ian Stuart told MPs.
But in its report on the fiscal framework, the finance committee recommended that the Treasury “improve the credibility of its forecasts given the impact that failure to achieve the set targets has on the broader economy’’.
“In the next quarterly engagement with the committee, National Treasury should report on measures it has taken to regularly update its forecasting model, acquire and retain the skills necessary to do economic modelling and improve the degree of certainty in the economic and fiscal targets set.”
The committee’s report emphasised the need for economic growth, and noted that the revised fiscal framework was “not promising” in this regard.
“The committee believes that the government needs to, among other things, do far more to reduce political and policy uncertainty, address key structural challenges, revitalise and stabilise Sars, encourage job-creating investment, spend more efficiently and effectively, act decisively against corruption and tackle the illicit economy more effectively.”
However, it reiterated its view that the government alone could not ensure the necessary economic growth and that parliament, the private sector, trade unions and other sections of civil society and the public all had a role to play. The government however had to take the lead.
The committee welcomed President Cyril Ramaphosa’s economic stimulus and recovery plan and said it wanted to see an implementation plan.
It also expressed concern that the fiscal risks identified by the Treasury in the medium-term budget policy statement and the budget review in the recent past had materialised, leading to worsened and continued fiscal slippage.
“Given the added potential impact of the volatility of global financial markets, trade disputes and other growing global risks, National Treasury needs to propose effective measures to mitigate the likelihood of fiscal risks materialising and impacting on the broader economy,” the report said.