President Cyril Ramaphosa’s newly unveiled economic reconstruction and recovery plan lacks the “firmness and determination” needed to turn SA’s beleaguered economy around, and bodes ill for the government’s commitment to fiscal consolidation, Old Mutual Investment Group chief economist Johann Els says.
Though the plan included “commendable aspects”, most of the initiatives are not new but rather a repeat of plans previously announced, Els said in a statement on Friday.
Ramaphosa announced the plan, that includes an expanded public employment programme, a R1-trillion infrastructure effort mostly leveraged from the private sector, a pledge to accelerate energy generation, and a raft of structural economic reforms, in parliament on Thursday.
These “high impact interventions”, a commitment to fight corruption and the promise of no political interference at agencies such as the National Prosecuting Authority are “positive and will help to rebuild confidence”, said Els. But he expressed concern at the aim to spend R100bn over the next three years in the expansion of public employment programmes as well as the three-month extension of the special Covid-19 relief grant.
With the plan’s unveiling, the focus will now move to the medium-term budget policy statement (MTBPS), where finance minister Tito Mboweni will have to provide a clearer picture as to how the state will balance the aims of the programme, with a commitment to fiscal sustainability.
On Friday, parliamentary spokesperson Moloto Mothapo confirmed that the MTBPS will be delivered on October 28, after Mboweni requested a postponement. The requested delay was, in part, driven by the need to consider the implications of the recovery plan for the budget process.
In the June supplementary budget Mboweni laid out the effect the virus has had on an already weak fiscus — revealing a R304bn revenue shortfall, a widening budget deficit to 15.7% of GDP, and a debt-to-GDP ratio expected to exceed 80% be the end of the fiscal year. He warned of a sovereign debt crisis if SA fails to rein in spending and reduce debt levels.
“The delayed MTBPS and the three-month extension to the special Covid-19 grant, combined with the presidential Economic Advisory Council’s statement that too much expenditure cutback will hurt the economy, leads me to worry about the commitment to the June supplementary budget’s targets,” said Els.
Ahead of Ramaphosa’s announcement, the panel of eminent economists selected to advise the president, provided him with a separate report on SA’s economic recovery. The panel warned that the government’s debt stabilisation targets are not feasible in the coming three years.
Nevertheless the council recognised the need to address SA’s spiraling debt problem and advocated for a change in the nature of government spending — beginning with a move away from civil servant wages towards greater investment in social and economic infrastructure.
But Els said that stimulating the economy through either extra spending or by easing up on spending cuts “is the absolute wrong approach”. “Ultimately, I worry that the MTBPS will also lack the real fiscal consolidation promised or needed.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.