In the wake of the worst year for business confidence on record, SA must prioritise economic restoration as well as deal with the hazard of the Covid-19 pandemic to escape the “fiscal logjam” it finds itself in, the SA Chamber of Commerce and Industry (Sacci) said on Wednesday.
Given SA’s unsustainable fiscal position “caused by excesses of the past and structural economic challenges”, the Budget Review later in February will be a “watershed event” in outlining the medium-term corrections of public finances, Sacci said in a statement about its latest business confidence index (BCI) figures.
The BCI showed that, though business conditions have clawed back monthly ground since October 2020 — on an annual basis with 2015 as the base year — the BCI in 2020 averaged 86.5, its lowest level since the inception of the index in 1985.
During the economic sanctions period of the 1980s, the 1985 BCI measured the second-lowest average of 91.5, followed by 92.6 in 2019, according to Sacci.
The release comes just ahead of the state of the nation address (Sona) on Thursday, when President Cyril Ramaphosa is expected to outline the implementation of promised structural economic reforms and the progress on the government’s efforts to resuscitate the virus-ravaged economy.
Sacci highlighted that it is important to see whether “decisions that reflect on the realism of the minister of finance” find their way into the Sona and overall policy direction.
“With steeply rising unemployment and an unsustainable fiscal position, it is clear that the present core economic policy agenda should focus on restoring the economy before other matters can be addressed,” the chamber said.
Capital markets are sceptical about whether spending items, such as employee remuneration and social grants, can be reined in. SA’s debt trend may also become more unsustainable, Sacci added.
“The only way out of this predicament is to enhance private-sector fixed investment, provide credible economic policy that improves confidence in economic growth prospects, and reduce the role of the state to lessen borrowing levels and public debt-servicing costs,” said Sacci.
Moody’s opinion
The call comes after Moody’s Investors Service — which downgraded SA twice in 2020 and has the country on a negative outlook — underscored SA’s mounting fiscal pressures and the slow pace of economic reforms.
In its credit note issued on Monday, Moody’s warned that it could downgrade SA if it found that the country’s debt burden and related pressures on debt affordability rise faster and for longer than anticipated.
In the budget, finance minister Tito Mboweni will provide more details on efforts to stabilise SA’s financial position. These plans hinge on steep cost-cutting efforts, largely from the public-sector wage bill, which is opposed by public service unions.
Along with these savings, long promised economic reforms to boost growth are needed to rein in debt, which the Treasury forecasts will peak at just more than 95% within five years.
These issues notwithstanding, the BCI showed that — after recording its worst level in May 2020 during SA’s hard coronavirus lockdown — the business climate experienced “marginal” monthly improvements from October, which continued into January 2021.
In January, the BCI reached 94.5 index points — a large improvement on the same period a year ago — due, in part, to a positive financial environment that includes low inflation levels and improved real financing costs for businesses.
“The full effect of stricter lockdown measures in December 2020 has apparently not yet filtered through to the business mood,” Sacci said.
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