Finance minister Enoch Godongwana has moved to assure international investors that he is committed to the policy trajectory set out by his predecessor Tito Mboweni, saying on Friday that he sees “no changes” in SA’s fiscal framework.
A week into his appointment, Godongwana told a global investor call that “what my predecessor set out in the [medium-term expenditure framework] and the fiscal framework is to some extent sacrosanct”. He also underscored the government’s commitment to structural reforms highlighting progress made in areas such as electricity.
Godongwana replaced Mboweni in a cabinet reshuffle by President Cyril Ramaphosa just weeks after civil unrest and looting gripped the country, in a further blow to business and investor confidence in an economy already battling the ongoing ravages of Covid-19.
Apart from an initial reaction by the rand to the reshuffle, markets were mostly unfazed. On Friday, SA’s benchmark R2030 10-year bond was yielding 8.88%, exactly where it was on the day of the cabinet changes.
Godongwana — who has engaged with financial markets as the head of ANC economic transformation committee — takes the helm as SA’s stretched finances have been granted a temporary reprieve thanks to a tax revenue windfall. The revenue overrun — which some estimates put at a possible R100bn — has been fuelled by booming commodity prices, which have boosted the local mining sector.
Though there may be changes “in style” between himself and Mboweni, Godongwana said there would be “continuity in terms of the policy trajectory”.
Mboweni pushed hard during his tenure to put SA’s finances on a sustainable path and reduce ballooning debt levels. He built a case for reduced spending particularly on items such as the public sector wage bill and moribund state-owned entities (SOEs) — often going head to head with ANC alliance partners such as labour federation Cosatu. The National Treasury went to court, and won, when unions challenged its refusal to honour the last leg of a three-year wage settlement for public-sector workers agreed in 2018.
“Both of us are coming from the same party, we don’t have different mandates. And from that perspective there will be continuity in terms of the ... sustainable fiscal path he has chosen,” Godongwana told investors.
The bump in revenues — which economists have warned will lose steam as commodity prices normalise — has however brought with it pressure to spend more, garnering a push for the introduction of a basic income grant.
Godongwana will present the upcoming medium-term budget policy statement (MTBPS) and despite the windfall acknowledged the pressures facing the fiscus — most notably from the government wage bill and SOEs.
Though the commodities boom has been good for the budget, “what I cannot predict is how long that windfall will last”, he said.
He noted however that “we have got to make provision, so long as that windfall lasts, [to ensure] we are in a better position”.
Godongwana made a point to praise the technical team at the Treasury. The department faced enormous political pressure under Jacob Zuma’s administration, for taking a firm line on fruitless and wasteful spending and has been considered one of the last holdouts against state capture.
“I suspect I can only fail if I destabilise this institution,” said Godongwana.
He stressed the government’s commitment to structural reforms, particularly the work being done by the Treasury, alongside the presidency under Operation Vulindlela, which is headed by his deputy, David Masondo.
The gazetting of rules, published on Thursday, that will allow private players to generate up to 100MW of “distributed”, or self-generated, electricity without a licence was an example of the progress being made on long promised reforms, noted Godongwana.
The move to make the Transnet National Ports Authority an independent subsidiary of the logistics parastatal was another important development, he added.
Godongwana’s appointment is also being closely watched by ratings agencies — who have consistently highlighted SA’s fiscal fragility and low growth as risks.
The minister was scheduled to meet with theseagencies immediately after speaking to investors on Friday. All three major ratings agencies have SA at subinvestment grade with both Moody’s Investors Service and Fitch holding a negative outlook, while S&P Global’s is stable.
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