LUKANYO MNYANDA: Tito Mboweni will try to get a fix on targets

The time has finally come. Finance minister Tito Mboweni will present his medium-term budget policy statement (MTBPS) on Wednesday.

It was initially set for last week before being moved to accommodate a foreign engagement for President Cyril Ramaphosa. As it turned out, Ramaphosa was in Russia,  lending credence to President Vladimir Putin’s newfound status as the preeminent global statesman.

Then Mboweni injected a bit more farce by suggesting that the event would be moved again, this time forward by a day, apparently to again accommodate another trip by the president, causing a scramble among those who had already made travel plans.

Ramaphosa will be around after all, so the medium-term budget will be on Wednesday. The build-up hasn't exactly given the impression of a government running a slick and professional machine.

What will be crucial is what Mboweni has to say about the coming years and whether markets will deem his observations credible.

One can suppose the timing is really of no significance because, in any case, Mboweni’s speech probably comes at least five months too late. One might even argue that it could have been delivered even earlier because it wasn’t too long after the February budget was released that its numbers and assumptions were rendered irrelevant.

Just five weeks after Mboweni said in his February 20 speech that GDP would expand 1.5% in 2019, the SA Reserve Bank’s monetary policy committee downgraded its forecast, which had been more optimistic than the government’s, to just 1.3%. It only got worse from there, and events would only confirm that the forecasts on government spending, debt and the budget deficit weren't worth the paper they were written on.

In anticipation of an economic contraction in the first quarter, partly due to the return of the dreaded Eskom load-shedding and the five-month strike at Sibanye-Stillwater, the MPC again cut its growth forecast during its meeting in May, to just 1%.

With its forecasts already looking unrealistic, the Treasury may as well have used the May elections as an opportunity to reassess the numbers at its disposal and produce a new budget, taking into account the change in circumstances and the new administration’s priorities. It was already becoming clear that Eskom would need more money than the government had budgeted for and this would require extra borrowing.

But that didn’t happen. Journalists and analysts eventually stopped referring to Treasury data in their reports as by then this had become really pointless.

Even more so when the first quarter GDP number came in worse than anyone expected, with the economy shrinking 3.2%, the worst performance since the depths of the global financial crisis a decade ago. So it was hardly a shock when the MPC revised its growth forecast again and said growth would be just 0.6%, down 1.1 percentage points from what it had been expecting in January.

Even before the latest bailout for Eskom — R59bn over two years — it was clear that Mboweni's forecast of debt to GDP stabilising at around 60% in 2023/2024 was pie in the sky.

That’s more likely to be hit in the current fiscal year. Already in May, Moody’s Investors Service was warning that the debt ratio, if support for Eskom was factored in, would be close to 70% in the “medium term”. Fitch Ratings, one of the companies that already has us on sub-investment grade, has said that it sees the ratio reaching 68% by 2021/2022.

On the plus side, with everyone from ratings agencies to the IMF seemingly having more up-to-date numbers than the Treasury, there is unlikely to be any nasty surprises on Wednesday, even if a more proactive communication strategy might be good for the credibility of government forecasters. 

What will be crucial is what Mboweni has to say about the coming years and whether markets will deem his observations credible.

And no doubt he will, as he always does, have sensible things to say about how the country needs to tighten its belt, get serious about fixing state-owned enterprises and not just endlessly throw money at them.

He could also give more details on the budget cuts that the Treasury has sought from government departments, which are said to range from 5% to 7%, for a saving of about R300bn over three years.

Mboweni will again emphasise the need to kick on with structural reforms to boost the economy’s growth potential. Some of these reforms are contained in the strategy paper that he released in August and were predictably rejected by Cosatu and the South African Communist Party.

And as always, the problem will be in the doing, and so far government has come miserably short on that score as the management of ideological differences in the ANC-led alliance is still the bigger priority.