- South Africa risks a fiscal crisis by 2024/25 if the country continues to live beyond its means, Finance Minister Tito Mboweni has warned.
- Mboweni says the upcoming medium-term budget policy statement might not be very popular in light of difficult decisions that need to be taken.
- A fiscal crisis would contribute to a financial or banking crisis, he added.
South Africa risks a fiscal crisis in four years, similar to that experienced by Argentina, said Finance Minister Tito Mboweni.
The minister made the remarks during a panel discussion hosted by Stellenbosch University's economics department, which on Friday was celebrating its centenary.
Mboweni spoke frankly about the state of the economy, which was already in a recession prior to the nationwide lockdown that started in late March to stem the spready of the coronavirus.
The economy is set to contract anywhere between 7% and 13% this year - the worst economic performance in 90 years. As a consequence Treasury sees SA's debt-to-GDP ratio widening to 81.8% this fiscal year, and possibly breaching 100% by 2023/24 if no changes are made.
"I do not think the medium-term budget policy statement will be popular, particularly as we will deal with things like South African Airways and other state-owned enterprises," Mboweni said. He is due to table the medium-term budget policy statement on 21 October, which will map out the country's expenditure plans for the next three years.
"Before the lockdown, we were already in a technical recession, so revenue was also down from the point of view of the fiscus. Then coronavirus hit us... The ban on the sale of tobacco and alcohol actually made people in the tobacco and alcohol industry extremely rich - they shot up prices. The underground market was active," he lamented.
All sectors of the economy, bar agriculture, contracted significantly during the second quarter of the year.
Treasury expects a tax revenue shortfall of about R300 billion to the depressed economy, all while pressure on expenditure is growing, said Mboweni.
Mouth of the hippo
"The next issue that bothers me is the hippopotamus mouth - revenue is declining and expenditure is going up. You have to close the mouth of the hippopotamus," said Mboweni. "If you don't close it, what concerns me is that we are headed for a fiscal crisis."
The minister said there had been a sell-off of SA bonds at an "alarming rate". If domestic banks and institutions were to remain the largest holders of SA bonds a possible fiscal crisis would contribute to a "banking crisis and a financial crisis", said Mboweni. "It is a very serious situation that we are facing. We can no longer live beyond our means," he said. The minister said he shared his concerns with Cabinet too.
"A fiscal crisis is on its way by 2024/25 if we do not take the serious measures we need to take to close the mouth of the hippopotamus."
Mboweni said he had a meeting with Harvard professors two days ago, who warned SA would be "heading the Argentina way". "I had the former governor of the central bank of Argentina on the line, he said, 'I have seen that movie before, and you guys are going that way,'."
Argentina secured a $57 billion loan from the International Monetary Fund in 2018 - it is said to be the largest loan in the history of the institution. The country has suffered multiple economic crises and has entered into 21 IMF programmes.
But Mboweni said that there are some "greenshoots" in the economy. Mining and manufacturing are rebounding sharply, he noted. Growth could improve from around -7.9% or -8% to "maybe a nice recovery" of 2.9%, said Mboweni.
Mboweni said when it comes to "policy coordination" in the government system the central coordinating mechanism is the Cabinet. "Eventually things come to the Cabinet, that is where policy coordination takes place," he explained.
While the "mechanism" is there, Mboweni said the question is whether the correct policies are being coordinated. Using the example of spectrum, a topic spoken of for years, he noted that decisions have been taken by Cabinet, but no progress has been made. "You guys need to understand politics. Why is it not moving? It's a political problem, not a coordination problem," said Mboweni.