Dire warnings led SA to expect the worst for this week’s budget. This explains the level of surprise at the better-than-expected speech from Tito Mboweni on Wednesday, writes Ron Derby
Our fortunes have shifted so much over the past year in ways that I don’t think it will ever be repeated.
Let me replay what has happened to state finances over the past 12 months, starting with last year’s budget speech by Finance Minister Tito Mboweni.
The speech was delivered as a last-ditch attempt to avoid a ratings downgrade by Moody’s Investor Services that would tilt the country over the edge and into full blown “junk” status. His attempts at reducing public sector wages being the key item singled out by agencies and the investment public. In the end, he didn’t sway the judge’s decision as the guillotine fell. But what would happen in its aftermath wouldn’t play out to script, as the Covid-19 pandemic would turn the world on its head.
Faced with a recession, the deepest in 100 years, Mboweni would have to review his budget and find measures to boost the economy - remember the promise of R500 billion stimulus that is rarely spoken of anymore? There was all manner of talk of the World Bank and other international agencies granting the state loans in the face of the crisis, and these agencies were and still remain as keen as ever. In the mad panic, there was much criticism levelled at the state for not taking them up and quickly.
But it was prescient that Treasury didn’t give into the pressure, as our books in the Medium-Term Budget Speech showed a marked deterioration in our debt metrics. One could only imagine just how much more desperate our case would have been if we had undertaken dollar loans. The story Treasury told as a forewarning of things to come in that October “mini” budget was of our growing similarities with Argentina, the Latin American state that has been in economic freefall for the better part of three decades, if not longer. It was sobering, as we considered the very real possibility of tax increases even in our low growth environment.
The dire warnings further lowered, if that was even possible, our expectations for this week’s budget. This explains the level of surprise at the better-than-expected speech from Mboweni this week, where tax hikes are not on the table and actually some relief was afforded to both everyday consumers and businesses. Higher commodity prices have rescued what would have been yet another depressing address, with warnings of deteriorating debt metrics.
What a year it has been for Mboweni and his team, with local and global conditions are constantly shifting and more volatile than ever. There can be no resting on our laurels thinking that these positive markets we are experiencing at this juncture will be there in a couple of months, let alone tomorrow.
We should focus on what we can control; building the capacity of the state to firstly vaccinate its people, undertake the reforms in energy and telecommunications, to boost growth and to put bankable infrastructure projects on the table. The world is uncertain, we can no longer afford an uncertain state as well.
We need to chart a course and not be distracted by the theatre of the bad politics of leaders of yesteryear such as former president Jacob Zuma.