President Cyril Ramaphosa’s management of the economy over the past 18 months has come under intense criticism by SA’s biggest business organisation, which says runaway government debt now poses the risk “of taking us all down”.
Business Unity SA (Busa) president Sipho Pityana says the economy is in a worse state than it was 18 months ago because of government’s reluctance to take the hard decisions required to stabilise public finances and create conditions that are more conducive to economic growth. Unless government itself acts to cut government spending, it will be forced into an austerity programme by the International Monetary Fund (IMF) when private lenders turn their backs on the country, Pityana says.
Since Ramaphosa came into office SA’s debt to GDP ratio has ballooned due to a number of factors, including ongoing bailouts for state-owned entities, a public sector wage bill that is rising faster than inflation, rand depreciation and lower than expected growth and tax revenues. In February the Treasury said the debt to GDP ratio would stabilise at 60,2% in 2023/24 and the state's deficit before borrowing would come in at 4,5%.
But Fitch Ratings said last week that after the latest bailout for Eskom it expected SA to miss these targets by far, with debt to GDP reaching 68% in 2021/22 and possibly rising further, and the budget deficit reaching 6,3% at the end of 2019/20.
The crisis is causing deep concern among business, labour and the public. In a meeting between Busa and Ramaphosa two weeks ago, and again at a meeting at Nedlac on Thursday, Pityana and other business leaders were categorical that “it is crunch time for SA”.
“The debt situation is now posing a systemic risk. Domestic financial services companies are being coerced by government to continue lending. We are at a point where state debt poses a risk of taking us all down. And the reason is that the rough decisions are not being made,” Pityana said in an interview on Friday.
Among the “hard decisions” that business believes are required are a reduction in the public sector wage bill; a restructuring of Eskom, which includes cuttings costs; restructuring of other state companies, which would include some privatisation; and decisions to cut back state spending, which will necessarily imply an austerity budget for the first time in 20 years. This will undoubtedly affect on the private sector, which will also be forced into cost cutting and rationalisation, said Pityana.
Ramaphosa has personally given undertakings that no jobs will be cut in the public sector or at Eskom. He has also championed government initiatives such as the national health insurance proposal, which will increase pressure on government finances still further.
“None of us — business, labour or government — want an IMF scenario. But if we don’t act and do what we need to do to pull ourselves out of the debt trap we will face a doomsday scenario in which the IMF will tell us by how much to cut the public service wage bill,” Pityana said.
Labour, which is equally concerned about the prospects of an IMF bailout, differs sharply on what steps should be taken to arrest the economic crisis. Its main strategy has been to try to extract undertakings from both government and business not to retrench workers.
“In our view, the steps that are required should include business forfeiting profit to shareholders, forfeit bonuses and implement short time for workers rather than retrenchments. Recovering of monies stolen through corruption and bringing those to book as a matter of urgency must also be done,” Cosatu general secretary Bheki Ntshalintshali said in an interview on Saturday.
In his opening remarks to the Nedlac Jobs Summit meeting on Thursday Ramaphosa for the first time expressed grave concern over the economy, describing it as a “deep and serious crisis”.
In response to questions from Business Day, spokesperson Khusela Diko said on Sunday that Ramaphosa was on record acknowledging the serious economic challenges and had welcomed “the frank and probing discussions” all social partners had engaged in.
As well as ongoing initiatives adopted by the jobs summit, which would help address the jobs crisis, Ramaphosa’s office said it was “common cause that adjustments, both on the spending and revenue side, must be made to bring the debt burden under control”.
Finance minister Tito Mboweni will convene the first meeting of the ministers’ committee on the budget on Tuesday, to “consider a range of options available to address the spiralling debt and other related budget issues,” the office said.
Treasury director-general Dondo Mogajane told Business Day on Friday that the Treasury had prepared a range of options to address the debt situation, which will include expenditure cuts, for instance to the public service wage bill, and tax increases.
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