Millions, Billions, and Trillions – Medium-Term Budget’s figures

Today Finance Minister, Mr Tito Mboweni, delivered the Medium-Term Budget Policy Statement (MTBPS), outlining government’s revenue and expenditure expectations for the forthcoming periods.

Upon listening to the Minister detail the underlying segments of government’s plans to spend money (money that it doesn’t actually have!) on implementation of policies to stimulate growth, I was reminded of the analogy I have often used to explain the difference between millions, billions, and trillions, to put the differences into perspective for us lay-people who don’t often use numbers with so many zeroes.

So, consider this:

  • If I say that I am going somewhere, and will be back in one million seconds, I will only return in around 11 and half days!
  • If I say that I am going somewhere, and will be back in one billion seconds, I will only return in around 31 years and 8 months!
  • And if I say that I am going somewhere, and will be back in one trillion seconds, I will only return in 31,709 years! (A trillion seconds ago, the earliest civilisations did not even exist yet!)

Mr Mboweni was undoubtedly stuck between the proverbial ‘rock and a hard place’, faced with an economy that has, like many others across the globe, been ravaged by the impact of a hard lockdown, declining tax revenue, and climbing public debt. To expect his delivery to be widely accepted by the market was naïve, at best.

The Finance Minister detailed government’s plans to cut spending by over R300 billion over the next 3 years, mainly through freezing public sector wages (teachers, policemen and women, social workers, etc.), in an all-out-effort to bring the economy back from the brink and avoid a situation where government cannot meet either its interest payments or repayment of its debts.

The market’s reaction to Mr Mboweni’s MTBPS was mixed, with a marginal weakening of the currency while bond yields remained flat as investors dissected the numbers. But by 15:30, the currency had clawed back its losses to trade around the same levels as earlier in the day. And although Treasury’s forecasts for growth over the coming 3 years show some source for relief and optimism, an expected decline in GDP of -7.8% in 2020, followed by an expansion of +3.3% in 2021, +1.7% in 2022, and +1.5% in 2023 do little to paint a rosy picture of RSA Incorporated.

As always, we remain vigilant in managing your investments through these challenging times, and the twin strategies of diversification and multiple-style investing should enable us to continue navigating your portfolios through the uncertainty and volatility we anticipate as South Africa and the global economy emerge from the impact of Covid-19.

We wish you and yours well, and may you stay safe as we enter the last two months of 2020, and thank you for your continued loyalty and support of our funds and solutions.

Warm regards,

Steve Crouse

Chief Investment Officer and Senior Advisor