Mushtak Parker
Finance Minister Tito Mboweni had barely unveiled his recent Medium-Term Budget Policy Statement (MTBPS) in Parliament when his political foes at home predictably unleashed a barrage of unflattering epithets regarding his management of the country’s finances.
His statement was a curious mix of misplaced optimism, hope and the rhetoric of aspiration, laced with a dose of denial, despair, frustration, caution and a damp squib of a call to action for South Africans.
The economy may survive the impact of Covid-19, as he stressed, but can it continue to survive more than a decade of mismanagement, state capture and corruption?
The albatrosses round Mboweni’s neck remain GDP growth, government debt and the wage bill. Fitch Ratings, which downgraded South Africa’s IDR to “BB” with a negative outlook in April, responded to the statement observing that it “further raises the trajectory of government debt. Achieving debt stabilisation will depend crucially on difficult negotiations with public sector trade unions”.
The government now expects gross loan debt, its main measure of public debt, to rise to 90.1% of GDP in FY23 from 63.3% in FY20.
“In its June supplementary budget, the government aimed to contain debt to 86% in FY23. It now forecasts debt to peak at 95.3% in FY26. The upward revisions reflect expectations that expenditure for the next two years will be around 1% of GDP higher than planned in June,” said Fitch’s senior director, Jan Friederich.
He warned that Pretoria is borrowing R2.1bn per day.
“We cannot sustain,” agreed Mboweni, “current levels of debt; particularly as increasing borrowing costs are diverting resources that should be going to economic and social development.”
The economy, according to him, is expected to contract by 7.8% in 2020, recovering to 3.3% real GDP growth in 2021 and averaging 2.1% per annum between 2021 and 2024 – far too modest to kickstart the “green shoots (of recovery) that are emerging”.
Even if there “will be a strong rebound in Q4 2020” as Treasury forecasts suggest, its contribution to GDP will be minimal, if not negative.
Despite President Cyril Ramaphosa’s recent Economic Reconstruction and Recovery Plan, says Friederich, “growth will remain weak”. Tension within the ANC will hamper policy-making and high inequality raises social pressure for additional spending.
Mboweni is coy about public sector wages, suffice to stress that “over the next five years, it will need to grow much slower. Consideration should be given to across-the-board pay reductions to management-level positions, national, provincial and municipal governments, state-owned entities and all other senior public representatives”. Over the past five years, public sector employee compensation grew by 7.2% a year on average – well above inflation.
His proposed wage freeze for the next three fiscal years, which is effectively wage growth of 0.8%, against inflation of around 4%, will depend on negotiations for a new agreement after the current one expires in April next year. As Fitch observes, “the track record on negotiating wage agreements in line with budget assumptions is weak, and there is limited room for offsetting measures in other expenditure areas”.
Can Captain Tito unlike Coleridge’s Rime of the Ancient Mariner (not a captain but necklaced by a dead albatross) weather the storm-blast and strengthen the ship, thus breaking free from “a trap of paralysis”?
The ANC, in the symbolism of Coleridge’s poem, will have to be exorcised from its immediate past sins, repurpose its relationship with South Africans, acknowledge that all lives matter and dispense of politicians’ egos!
* Parker is a writer and economist based in London
Cape Times