The medium-term budget policy statement delivered by Finance Minister Tito Mboweni this week painted a very bleak picture of the country’s R3 trillion-and-counting debt mountain, unmanageable public service wage bill and lossmaking state-owned enterprises (SOEs).
However, not everyone thought he hit the right note after the brutally honest diagnosis.
Business Unity SA acting chief executive Cas Coovadia said Mboweni sang the right tune with his speech but it was up to the president to not only endorse it but support and dance to the tune.
“We need the president to fully support the minister and rally the government behind the plan and give a report by next year February when the minister gives his budget speech,” he said.
He pointed out that one of the first things Eskom needed to do was appoint a “world-class” chief executive while non-strategic SOEs that were lossmaking should be shut down.
Coovadia said the allocations made to the National Prosecuting Authority and SA Revenue Service were much needed because the institutes had to have resources to pursue culprits who looted state coffers.
Busi Mavuso, chief executive of Business Leadership SA, said Mboweni’s plans to cut spending by R50 billion in each of the next three years was a step in the right direction even if the tax revenue shortfall now was R53 billion.
“The R50 billion is not going to be enough unless it is incremental in the following years because, with the worsening economic growth, the revenue targets will continue to be elusive.”
Mavuso commended Mboweni for acknowledging that some austerity measures had to be taken and more could still be done to save government costs. “Maybe freezing salaries should be extended to all public servants and those in SOEs and the size of Cabinet reduced because money can be saved by cutting off a lot of the deputy ministers.”
The government, Mavuso said, did not have to create jobs but simply create an environment fertile enough for jobs to be created by businesses.
Black Business Council chief executive Kganki Matabane, however, said Mboweni’s speech did not focus enough on support of small businesses which are important in growing the economy.
“We would have appreciated it if the minister had made an announcement regarding the timelines of releasing the Public Procurement Bill for comments by the public. This bill is important to black business as it will replace the Preferential Procurement Policy Framework Act (5/2000) and make it possible for small and black businesses to be given fair procurement opportunities that will enable job creation,” he said.
Matabane said the decision to give Eskom and other SOEs repayable loans instead of a bailout in a form of equity recapitalisation was a good one but should be accompanied by accountability.
“Meeting the conditions of the loans should be incorporated into the performance contracts of the executives and boards so that proper consequence management can be implemented in case of non-performance,” he said.
Other economists said although Mboweni hit the nail on the head by acknowledging the sad position of state coffers, he failed to offer viable solutions to create jobs, manage the public service wage bill and curb expenditure to manage the debt.
“He failed to determine a clear path because on a number of serious issues he kicked the can down the road and that only makes things worse; but to be fair to him, the problem is with the whole Cabinet and not him. Cabinet must take responsibility and not Treasury alone because he is not in control of so much of the issue,” Matabane said.
Iraj Abedian said the decision to offer loans to Eskom and SOEs was not going to be effective as the loan would still increase government debt.
“The R50 billion cuts were a good decision because government is bloated; Cabinet needs to take service delivery seriously so that government will need fewer people but competent people.”
Bafana Mathidi, portfolio manager at Aluwani Capital, said the R50 billion cut in procurement might look significant in isolation but might not be much in getting the country out its debt crisis.
Mathidi pointed out that the failure to mention more details on Eskom most probably also affected the strength of the rand on the day of the speech.
“Not much was mentioned about Eskom’s debt that was new or provided further clarity. I would argue that this remains the biggest disappointment as evidenced by the rand weakening from R14.60 to more than R15 from the start to just after the budget presentation. It just elevates the risk of a downgrade by the likes of Moody’s,” Mathidi said, adding that the speech did not seem to shed light on a plan to target unemployment and SOE debt.
“If one were to take a step back, sadly South Africa does not have a plan aimed at targeting unemployment and SOE debt, especially Eskom.
“We have a few recycled ideas that are often implemented badly, if at all,” he said.
Senior FNB economist Siphamandla Mkhwanazi said over the medium term the main budget expenditure was projected to average 32.4% of GDP with the revenue average estimated at 25.9%, bringing the balance to a significantly weaker deficit of 6.4% to GDP compared with this year’s budget estimate of a 4.7% deficit for 2019/20.
“This deterioration in the fiscus led to adjustments in the government’s borrowing strategy. National government’s gross borrowing requirements were lifted in line with the higher budget deficit and maturing debt.
“In fact, gross loan debt is expected to increase from R3.2 trillion which is 60.8% of GDP in 2019/20 to R4.5 trillion which is 71.3% in 2022/23.
“Although the increased borrowing is mainly geared towards financing the budget deficit, other key drivers of this increase include fluctuations in borrowing costs, inflation and exchange rates,” he said.
Mkhwanazi said the severe deterioration in the fiscal deficit might embolden Moody’s to place South Africa’s sovereign rating on a negative outlook. “Moreover, we are of the view that the likelihood of a downgrade to sub-investment grade in the coming months has risen substantially.
“Discouragingly, downside risks to the fiscal outlook remain stubbornly entrenched if economic growth continues to deteriorate, the government fails to contain the fiscal deficit and Eskom’s financial and operational metrics worsen much further than currently anticipated,” he said.