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WRAP | Mboweni strains to avoid sovereign debt crisis while searching for green shoots

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28 October 17:26

Compared to the 2008 global financial crisis, South Africa is now in a far worse position as it attempts to navigate the effects of the Covid-19 crisis, Finance Minister Tito Mboweni has said.

The minister, who tabled his medium-term budget policy statement on Wednesday afternoon, reiterated warnings of a looming fiscal crisis as SA's continues to borrow more to cover its budget. 

"No budget process is easy. This one has been particularly challenging for all of government," Mboweni said in the foreword to the monetary policy statement. 

Among Wednesday's key announcements were

* R10.5 billion in new funds for SAA to enable it to proceed with its business rescue.

* The state is now aiming to reach a debt-to-GDP ceiling of 95% within the next five years.  

* The stock of gross debt will rise from roughly R4 trillion this year to R5.5 trillion in 2023/24.

* Govt is aiming for a budget surplus in 2025/6

* Discussions are ongoing between the government and unions about decreasing the state's wage bill. 

* Treasury now expects SA's economy to contract by 7.8 per cent this year.

* The medium-term budget did not include any updates on plans to restructure Eskom's R488 billion debt burden. 

* The minister says that data suggests that economic green shoots are emerging, and there will be a "strong rebound in the next quarter".

For an overview of key takeaways from the address, read the wrap by Fin24's Lameez Omarjee and Khulekani Magubane below.  

Mini budget in a nutshell: Mboweni's plans to navigate SA through Covid-19 storm

28 October 17:08

More reaction to the medium-term budget is starting to come in. 

The SA Chamber of Commerce and Industry says it "expected a greater sense of urgency and clear details on deliverables".

"We hope the government will urgently put together specific action plans with timelines to bolster state capacity to successfully implement the Economic Recovery and Reconstruction Plan that was delivered by the President and supported by the Minister’s budget," reads its statement. 

Business Unity South Africa, meanwhile, had commended the minister for giving an "honest assessment of the crisis SA is in".

"We also recognize that this MTBPS could not convey a good story. Unfortunately, the budget could only be bad news!Debt continues to increase; the revenue shortfall continues to increase and there is no sign of the structural reforms sorely needed to create an environment for investment."

28 October 17:04

The media briefing has ended.  

28 October 16:58

The minister is now asked whether investors will attach credibility to the new fiscal plan

"We are doing whatever we can in a very difficult situation," he says. 

"I do not expect any further downgrades. But if those occur, do not burn me at the stake," he adds. 

The Treasury team is set to meet Fitch later today. 

He says SA will engage in robust debate with them. 

28 October 16:56

National Treasury director general Dondo Mogajane says Treasury is aware that state-owned companies that are not performing have to be closed down. 

He is speaking about what needs to be done so that the country does not enter a debt spiral. The country is seeking a primary budget surplus in 2025/26.  

28 October 16:47

Mboweni says the DA is "out of order" to say the National Treasury "capitulated" re SAA. 

He says there is no "buckling under pressure", accuses the party of grandstanding. 

He says Treasury is carrying out a decision of National Government to support the airline's business rescue practitioners. 

"They must stop this nonsense," he says in reference to DA's stance on SAA. 

28 October 16:41

The medium-term budget has pencilled in about R40 billion over four years in possible tax increases. Asked for more information, National Treasury's deputy director-general Ismail Momoniat says that tax announcements will only be made on Budget day, which will take place in February next year. 

28 October 16:35

The minister says one of the key issues confronting SA is also a mindset change. 

"We used to boast about the fact that we were one of the richest countries in Africa," he says.  

He says the situation has changed and SA needs a mindset change, with rising a rising debt-to-GDP ratio and rising debt servicing costs. 

28 October 16:31

Asked again about decreasing the state's wage bill, Mboweni says he cannot "usurp" the powers of the Minister for Public Service & Administration. 

28 October 16:29

Mboweni says conversations are still taking place with the World Bank around a major loan. 

He says this is "not a Covid-19 loan", without providing further information. 

"We will continue pushing for success," he says. "For now please wait until we conclude the conversations". 

He again hits out at "speculation". 

28 October 16:23

Mboweni says that "many options" are being looked at for restructuring Eskom's R488 billion in debt. 

He says the state is at the moment involved in the "divisionalisation" of the power utility's debt, as the utility is split into three separate entities. 

"Don't let us run ahead of the horses," he says.  

28 October 16:18

"We are in a bind," says Mboweni. "We can't break the fiscal framework". 

He is referring to the state's wage bill. 

National Treasury director general Dondo Mogajane says space is needed for discussions to run their course. 

28 October 16:17

Mboweni, answering a question about the rise in the debt ceiling, says there is "nothing to worry about there". The ceiling has now been extended from three years to five years. 

The minister takes exception with the use of the term "bailout" for SAA. He says there has not been a bailout, rather the money is needed for the airline's business rescue plan. 

28 October 16:09

The media-term budget media briefing is expected to start soon. 

28 October 16:06

For those interested in diving deeper into the medium-term budget, Treasury has made all its documents available to the public at the link below. 
Medium-Term Budget Documents

28 October 16:02

PwC Economist Dr Christie Viljoen notes that future growth projections announced by Mboweni this afternoon rely on the success of the recently announced Economic Reconstruction and Recovery Plan.

"As with previous plans, strategies and agendas, the challenge here is in the implementation of the ERRP. This requires two key factors: political buy-in from all spheres of government as well as the human capacity to physically implement changes," he states. 

28 October 15:59

Mboweni's media briefing is expected to start soon. If history is a guide he will at some stage crack a joke about being the 8th governor of the SA Reserve Bank. 

28 October 15:50

As the first reactions to the address start to trickle in, the DA is criticising the decision to grant R10.5 billion to SAA. 

"The ANC government has chosen to cut essential services to the public – like education and policing – to fund another bailout of South African Airway. This is an indefensible, immoral choice. It amounts to throwing South Africans ‘under the plane’ to pay for SAA," states the party's finance spokesperson Geordin Hill-Lewis in a statement. 

Hill-Lewis adds that Mboweni has "abandoned" his commitment to get debt under control by 2023, as it is now expected to rise to 95% of GDP before stabilising in 2025/26. 

28 October 15:35

With the speech over, attention will now move on to a media briefing that Mboweni is holding at 4pm to unpack his address. 

28 October 15:26

Read more about the the minister's announcements around state-owned enterprises below, including the allocation of R10.5 billion to SAA. 

Mboweni agrees to SAA's R10.5 billion bailout; no funds for SABC, Post Office and Denel

28 October 15:22

The Western Cape government has already hit out at the minister for approving a R10.5 billion bailout for SAA. 

"What is clear from the Minister of Finance, Tito Mboweni’s, Medium-Term Budget Policy Statement, tabled today in the National Assembly is that our provincial budget has been cut by a further R1,47 billion in this financial year in the Western Cape," states David Maynier, the province's MEC for finance and economic opportunities.

"What is worse, is that our biggest fear was confirmed - provincial budgets have been cut to fund the R10.5 billion bailout of South African Airways"

28 October 15:13

For a review of the key points of the finance minister's address, read the wrap by Fin24's Lameez Omarjee and Khulekani Magubane below. 
Mini budget in a nutshell: Mboweni's plans to navigate SA through Covid-19 storm

28 October 15:08

The minister is now thanking all and sundry.

"We express our appreciation to the people of South Africa who continue to walk with us as we chart the way to a promising destination," he says. 

With that his address is over and Parliament is adjourned. 

28 October 15:06

The minister is now hearing the end of his address. As he has done on the past, he turns to scripture. 

The Gospel according to John chapter 12 verse 35 warns us: “You are going to have the light just a little while longer. Walk while you have the light, before darkness overtakes you. Whoever walks in the dark does not know where they are going.”

28 October 15:04

The minister says that corruption has "overshadowed our collective achievements in saving lives and supporting livelihoods". 

"The South African Revenue Services is working with other law enforcement agencies to evaluate R3.5 billion worth of tenders to awarded to entities not registered for VAT," he says.

"In addition, the State Capture Commission of Inquiry is allocated an additional R63 million from the Department of Justice and Constitutional Development to finalise investigations and produce a close-out report."

28 October 14:58

The minister says that R10.5 billion will be allocated to SAA to implement its business rescue plan.

This will mean that the airline can continue with its business rescue plan. The remark leads to some jeers, some clapping. Other MPs just shake their heads. 

"This allocation is funded through reductions to the baselines of national departments, public entities and conditional grants," he says. 

"Our approach is in line with the principle that funding to state-owned companies must come from within the current framework and reprioritised from elsewhere."

28 October 14:56

The minister says there needs to be a "new consensus on public-sector employee compensation".

"Over the past five years, public sector employee compensation grew by 7.2 per cent a year on average – well above inflation. Over the next five years, it will need to grow much, much slower. "

He says the Minister for the Public Service and Administration and the leadership of the public service unions are meeting to discuss how best we adapt to the reality.

"We must do more with less, and that we are all in this together".

28 October 14:54

The minister now pledges to install business confidence, promising "stable and predictable policies". 

"The future of work is now different in the post COVID-19 world," he says. "The public service must adapt to the new world after the pandemic. The crisis has highlighted and unfortunately widened inequality. We must continue to protect the most vulnerable."

28 October 14:51

The minister says Cabinet remains "resolute" and will "walk through the narrow gate towards fiscal sustainability". 

28 October 14:50

"Countries that find themselves in default see sharp GDP contractions and currency depreciations. On current trends, more of our taxes are being transferred to bondholders, rather than to critical services for our people," he states. "An uncontrolled increase in borrowing costs would harm small businesses, ordinary South Africans and the poor the most."

28 October 14:49

The minister says that Treasury is "grateful for the constructive discussions" around spending, before moving on to the country's growing debt burden. 

"Madam Speaker, we must be careful to avoid the fate of countries like Argentina and Ecuador that defaulted on their debt this year."

28 October 14:46

Mboweni says the BRICS bank is in talks with SA to extend another loan of $1 billion, without providing more information. 

28 October 14:45

Mboweni says that non-interest spending in 2020/21 is unchanged relative to the Special Adjustments Budget at R1.6 trillion.

The minister says that gross tax revenue has been revised down but this has been offset by other receipts into the National Revenue Fund. Main budget revenue, meanwhile, is now projected to be only R1.6 billion less compared to the Special Adjustment Budget.

Debt service costs have also been lowered slightly. 

28 October 14:42

Mboweni is now talking about some of the changes in allocations to govt departments. 

"We are happy to announce today that we are allocating R12.6 billion in this financial year to the game-changing employment initiatives championed by the President," he says. 

An additional R600 million will go to employ early childhood development and social workers, while R2 billion more has been allocated to Working for Fire, Working for Water and Working for Forests.

 

28 October 14:40

The minister says that, from the start of the lockdown in late March, cash grants were paid to over 22 million people, "nearly half of the population".

He said seven million people accessed the Temporary Employment Relief Scheme through the Unemployment Insurance Fund, while the Special COVID-19 Social Relief of Distress grant reached six million people.

This grant has been extended until the end of January. 

28 October 14:37

Mboweni provides the following breakdown of the R500 billion 

1. More than R30 billion for health and other frontline services

2. Support vulnerable households which is now in excess of R50 billion

3. More than R40 billion for wage protection through the UIF

4. Around R100 billion for job creation initiatives, which will now be spread over the MTEF

5. R200 billion for a credit guarantee scheme

6. R20 billion towards municipalities to assist them with COVID-19 related activities

7. R70 billion towards emergency tax measures

28 October 14:36

The minister now gives an update on  the state's R500 billion relief package announced in April. 

28 October 14:34

Mboweni also announces a "historic agreement with all NEDLAC constituencies" for the annuitisation of provident funds beginning in March 2021.

This, he says, will enable all workers to continue to enjoy tax deductions on their contributions. " We thank the labour constituency for identifying appropriate annuity products for low income workers."

28 October 14:33

Mboweni says that under the leadership of the Minister of Health, govt is exploring greater participation in the COVAX facility, a "global initiative to ensure equitable access to future vaccines".

28 October 14:32

The minister says that the Independent Communications Authority of South Africa has issued an invitation to apply for the auction of additional spectrum.

The long-delayed promise of additional spectrum has been mentioned in multiple previous budgets going back years

Auctioning additional spectrum won't bring down high data costs, says watchdog

28 October 14:29

Ticking off infrastructure plans, Mboweni says  are "exciting new proposals" for the development of more than 12 harbours in the Eastern Cape, KwaZulu-Natal, Northern Cape and Western Cape, without giving further detail.

"We will review our existing public finance regulatory framework to unblock infrastructure investment by the broader government."

28 October 14:27

Mboweni, talking about infrastructure, says the Tygerberg hospital still has "black and white" sections. He then says that he is talking about its structural layout 

He says a new hospital has to be constructed there. 

"It is unbelievable". 

28 October 14:24

Subsidies of R2.2 billion will support the Social Housing Programme aimed at poor, working South Africans, as part of a plan to upgrade SA's infrastructure, says Mboweni   

"A further R6.7 billion has been contractually committed to this programme. We expect that the total investment from this programme will be R20 billion over the next 10 years. As a consequence of the Fund, the Student Housing Programme worth an estimated R96 billion is underway. It will service nearly 300 000 students a year when complete."

28 October 14:22

The minister says that improving SA's supply of electricity is urgent.

"In line with our plan, there is progress in allowing municipalities to buy electricity from different sources.

"In addition, the way has been opened for the procurement of almost 12 000 MW of new electricity capacity to be provided by independent power producers.

"The ongoing implementation of the Eskom Roadmap and unbundling continues. Divisional managing directors and boards of directors have been appointed."

28 October 14:21

The minister says that "green shoots" are emerging. 

"In South Africa, the high frequency data that we collect suggests that green shoots are emerging. At this stage, it looks like there will be a strong rebound in the next quarter. These will be supported by government’s Economic Reconstruction and Recovery plan."

28 October 14:18

"Madam Speaker, you are now well aware that the country’s Aloe Ferox is drought resistant, it can survive the harshest of circumstances and can certainly withstand a pandemic. Our little Aloe Ferox has survived! It is recovering!"

The Aloe Ferox is a hardy plant that Mboweni has brought to the Parliament before. 

28 October 14:16

The minister now moves on to the global economic context. 

"A sharp - and hopefully short - global recession is underway. The International Monetary Fund expects global output to contract by 4.4 per cent in 2020, before rebounding to 5.2 per cent in 2021 in their October World Economic Outlook," he states. 

"Growth in advanced economies is strengthening. Next year, emerging market countries are set to grow by 6 per cent.

"Sub-Saharan Africa is expected to rebound to growth of 3.1 per cent in 2021. As always, Africa has been at the forefront of innovative solutions to the crisis, including delivering social assistance using digital technology." 

28 October 14:14

Mboweni says Treasury is forecasting that  South African economy will grow by 3.3 per cent in 2021, 1.7 per cent in 2022 and 1.5 per cent in 2023.

This year, however, it is projecting a fall of over 7%. 

28 October 14:13

Mboweni says the state is aiming for a budget surplus by 2025/26.

28 October 14:11

"We table a five-year fiscal consolidation pathway that promotes economic growth while bringing debt under control. The fiscal measures realign the composition of our spending from consumption towards investment and support efforts to lower the cost of capital."

He states that the state's revised fiscal framework puts SA on a course to stabilise the ratio of debt to-GDP at around 95 per cent within the next five years.

"The risks are higher," he states. 

The stock of gross debt will rise from roughly R4 trillion this year to R5.5 trillion in 2023/24.

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