Budget 2021

WATCH: SOEs behind the decay of the fiscus – economist

Johannesburg – Much of the decay of the country’s fiscus is self-made through bailouts to state-owned enterprises (SOEs), according to Alexander Forbes Investment chief economist Lesiba Mothata.

He spoke to Fin24 following the announcement of Finance Minister Malusi Gigaba’s maiden budget speech on Wednesday. He explained that the mini budget would have been very different if there had not been plans to fund SOEs such as South African Airways (SAA) and the South African Post Office (SAPO).

Mothata said that this was the opposite to former minister Pravin Gordhan’s budget in February. “What is making the difference is the SOEs and the bailing out of them.”

Lack of continuity

“Somehow we expected that there would be some form of logic in how SOEs are dealt,” he said. The promises made when Gigaba took over the reins at Treasury appear to have been broken.

“He made it clear that he comes from that department [Public Enterprises] and he understands the constructs thereof and he is better suited to ignite the reform [in SOEs].”

In addition, Gigaba made assurances at the World Bank-International Monetary Fund meeting in Washington that a clear plan was articulated to deal with SOEs to make sure that they do not “further deteriorate” the fiscal construct, explained Mothata.

“All this was promised, but the outcome has been very different to what we expected.”

The concern behind the SAA bailout is that there is no definitive outcome that there will be return on the investment, he explained.

Business Unity South Africa (BUSA) and trade federations Congress of South African Trade Unions (Cosatu) and the Federation of Unions of South Africa (Fedusa) also raised concerns over governance at SOEs and called for reforms.

Since 1994 the mini budget would provide certainty of the outcome for the February budget, which is not the case now. The budgeting process has changed, as a presidential task force will now be appointed to deal with the fiscal challenges and the plan will be put forward at the National Budget in February 2018, explained Mothata.

WATCH: 2017 Mid term budget of broken promises


“National Treasury, within its own institutional background deals with all issues of the economy, plans, does research and provides a solution and puts it and tabulates it in the February budget without any other process separate to that which is already happening to National Treasury. This is peculiar for me,” said Mothata.

Mothata added that ratings agencies would likely react with a downgrade which would result in capital outflows, a weakening economy and ultimately a recession.

Given that there have been political influences in economics, it is going to have to take politics to turn the situation around, he said.

“We are one month away from a very important and instructive elective conference in the history of South Africa.

“In terms of economics it is a clear decision, ratings agencies do not have to wait till December to make a call whether there is credit quality deterioration or not,” he said.

Tinyiko Ngwenya, economist at Old Mutual, said that investors will be watching how ratings agencies react. A downgrade would see South Africa exit the Citi World Government Bond Index. If certain investors are only mandated to invest in bonds listed in the index, they will have to offload bonds they have in South Africa, she explained.

* Visit our Mini Budget Special Issue for all the news, views and analysis.

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