As finance minister Tito Mboweni prepares to present an adjusted budget next week, while staring into the abyss of a R250bn-odd budget shortfall, he will be acutely aware of how constrained SA’s options are.
Despite our already unsustainable debt situation before Covid-19, there is no realistic prospect of reducing debt and interest costs in the near term. There will be a precipitous decline in tax revenue as businesses close around the country and many more people lose their jobs. As revenue plummets, the deficit will soar. But this is certainly no time for the government to be cutting budgets for basic services.
Ideally, the government should be able to spend more in a crisis, to get more money into the hands of struggling households and businesses. But that option is only available to those who have saved for the proverbial rainy day.
With SA’s cupboard bare, we have to focus on spending on real services and protecting the poor. Vanity projects (such as SAA), nice-to-haves, and exorbitant salaries for top bureaucrats all have to be cut, to protect services.
But all of this will still only be a plaster on the wound. Unless this budget is accompanied by structural reforms that unlock economic growth, SA’s financial crisis is insoluble.
Implementing structural reforms now will make it cheaper to borrow money, since it will signal to lenders that we will be in a better position to pay this money back. The more creditworthy lenders deem us to be, the lower the interest rates at which we can borrow.
Structural reform is also the only way to return to balanced budgets and debt stability in the medium term. We cannot just accept runaway debt as a new normal, because it ultimately has to be paid for. Debt is not free.
Structural reforms are generally seen as “bitter pills” that bring short-term pain but unlock long-term gain. SA is in no position to sustain any additional short-term pain now. But I would argue that the immediate benefit of being able to access more money would offset the short-term pain.
Furthermore, the DA would advocate for starting with those reforms that bring little to no short-term pain and would have an immediate positive effect on investor and lender confidence, such as ending Eskom’s monopoly on buying and selling energy, visa reform, auctioning spectrum to bring down data costs, and walking away from national health insurance (NHI), expropriation without compensation, prescribed assets and SA Reserve Bank nationalisation.
But we cannot afford to delay much longer on other reforms, such as liberalising our inflexible labour legislation, closing or privatising most state-owned entities, and growing the productivity of the state by appointing and managing for performance. And we certainly cannot be entertaining such unrealistic notions as new nuclear projects or further bailouts to SAA.
It is always tempting to seek “new” and “innovative” ideas in a time such as this. But the reality is that we need to go back to basics and fix the fundamentals: water, electricity, transport, ICT, education, health, policing, and the regulatory framework.
These are the systems which, when functional, enable a growing economy. Just as an individual’s growth and wellbeing are compromised by unhealthy or failing organs, so our economy’s growth and wellbeing is compromised when these systems are dysfunctional or failing, as they are now.
In each case the pathology is the same: too much control is centralised in an incapable state. In each case the remedy is the same: decentralise control to harness existing capability, much of which is in the private sector, and build the capability of the state.
Only with such fundamental changes to the way our economy operates will we reverse our decline and get onto a growth path.
Idealists may argue that we should be eschewing growth in favour of a focus on wellbeing, inclusion, or ecological sustainability. Yet, in SA’s context of entrenched poverty and a hollowed out state, these noble pursuits would be well served by structural reform.
Fixing our water system, for example, will bring health and environmental benefits. Fixing our energy and transport systems will bring more people into the economy and reduce air pollution. Cheaper data will enable people to get more things done remotely.
President Cyril Ramaphosa and Mboweni have long promised structural reform. It is now time for action. This is the kindest, least painful, most sensible route to take, and the only sustainable option available to SA.
Better to do this ourselves now than have it foisted upon us by international lenders later, when the hole we’re in is even deeper, and who may not be as sensitive to the order in which reforms could be implemented.
But the very first item on SA’s agenda for economic recovery must be to end this lockdown entirely. A sensible set of safety regulations, each directly related to slowing the spread of the virus, would improve compliance and enforcement and enable more people to get back to work, safely.
• Steenhuisen is DA leader.
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