Will Cyril Ramaphosa be the president of austerity or will he be the president who lands SA on the doorstep of the IMF? Those are the alternatives he now faces.
The news 10 days ago that Fitch Ratings expects the budget deficit to reach 6.3% and the debt-to-GDP ratio to hit 68% has pulled Ramaphosa’s choices into sharp focus. Only five months ago the National Treasury projected a budget deficit of 4.5% and a debt-to-GDP ratio of 60.2%. As the credit ratings agencies get privileged access to Treasury information and officials, the Fitch statement was time to sit up and take notice.
When business leaders met cabinet ministers from the economic cluster two weeks ago, and again when they met Ramaphosa along with labour leaders at Nedlac last Thursday, the key issue — apart from the disastrous unemployment statistics — was the country’s runaway debt scenario.
Fiscal sustainability has been fraying at the edges for several years now. In 2012 the Treasury put in place an “expenditure ceiling” that put limits on the growth of expenditure to stabilise the fiscal framework. But low growth, poor revenue collections and rand depreciation have led to the Treasury repeatedly missing debt and deficit targets.
With fiscal stability and discipline already falling apart, the Eskom bailout in February and the even bigger Eskom bailout in July completely blew the debt metrics out of the water.
Ramaphosa’s response to the country’s deteriorating finances has been, at best, naïve and, at worst, populist and irresponsible. It could be that during his time as deputy president he was blissfully unaware that the fiscal rug was slowly being pulled out from under our feet. He may have genuinely believed in the power of the “new dawn” and thuma mina and thought a bit of Ramaphoria could reverse a deteriorating situation.
That may explain why he felt comfortable in taking several decisions over the past 12 months that have been credit-negative for the country. Despite the urgency to rebalance public finances and bring under control a public-sector wage bill that has risen exponentially in real terms, among Ramaphosa’s first actions as president was to promise public servants there would be no retrenchments.
And despite the obvious need to cut costs at Eskom, which also has a wage bill that has grown exponentially, Ramaphosa promised workers there would be no retrenchments. At other state-owned enterprises, also overstaffed and inefficient, no rationalisation has taken place. Instead, the bailouts have been flowing.
As well as being reluctant to cut state expenditure, Ramaphosa has also nailed his colours to the mast of projects that will require more government funding and higher taxes. He has elevated national health insurance to a war room in his office, even though a short discussion with any one of his finance ministers would have revealed that this project is unaffordable for the country right now.
But it is the failure to act on Eskom that towers above Ramaphosa’s other missteps. In December 2018, on a directive from the government, the board of Eskom — after several months of work — submitted a turnaround plan for the company. Also in December, Ramaphosa appointed an expert task team to advise him on the way forward for Eskom, including the utility’s own proposal. The task team has submitted its final report for his consideration. Neither report has been presented to cabinet nor been shared with the public.
Last week, public enterprises minister Pravin Gordhan said a policy paper would now be written on Eskom. It should be ready by mid-September. So, 18 months after Ramaphosa identified Eskom as the single-biggest risk to the economy, the government still does not have a plan on the table.
Now we are almost out of time. Moody’s Investors Service is scheduled to make a ratings decision on SA in November. By October — though preferably before — the government must have reshaped the fiscal framework. Tax increases, no matter how large, cannot fill this gap. To pull the debt metrics back onto an acceptable trajectory, spending must be cut. And as infrastructure and investment spending has already been pared down, the only place to look is to big government programmes that benefit the poor, and public servants’ salaries.
If this happens, it will be the first austerity budget in 20 years. Public-sector spending cuts will reverberate through the private sector too. As South Africans are already seething with anger over joblessness and lousy living conditions, it won’t be a quiet affair.
If it doesn’t happen and the government wimps out, lenders will need no more evidence of the government’s lack of commitment to fiscal discipline. That is when Tito Mboweni will have to make the trip to Washington DC.
• Paton is writer at large.
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