In a fortnight, finance minister Tito Mboweni will table the 2020 national budget. If he fails to present a credible fiscal strategy to raise SA’s growth rate and halt the rapid rise in debt, SA will continue its downward slide into full-blown junk status.
To prevent ratings agency Moody’s Investors Service from junking SA’s last-remaining credit rating, which would kick the last shreds of confidence in SA to the curb, Mboweni must present a better picture than the horror show that was the October medium-term budget policy statement.
The statement showed that SA’s public finances are in a deep and intractable crisis. On current policies, gross debt will rise from 60% now to 70% over the next three years and 80% by 2027/2028.
Because the economy won’t grow and SA is borrowing at high interest rates, unless the government cuts spending significantly it will be impossible to stop debt from rising inexorably.
Three years from now, debt will have grown from R3-trillion to R4.5-trillion, according to National Treasury’s projections. Debt service costs will increasingly crowd out funds for education, health care and other essential services, inflaming the poor who are already up in arms over the government’s appalling service delivery.
To halt SA’s fiscal nosedive and kick-start growth will require deep cuts to the public sector wage bill (since it absorbs 46% of tax revenue), meaningful restructuring of state-owned enterprises (SOE), and economic reforms that light a fire under private sector investment.
Mboweni must present a convincing case on budget day that all these imperatives are being forcefully addressed. But how can he when this is precisely the area in which the Ramaphosa government is failing?
Already Mboweni’s fiscal target — getting debt to stabilise by 2025/2026 (excluding support for Eskom) — looks likely to be pushed out by a year or two to accommodate the most recent bout of in-year fiscal slippage.
Trying to pretend this target is an inviolable fiscal rule won’t wash. After all, the expenditure ceiling (which was supposed to be sacrosanct) was breached in February 2019 on his watch.
To meet his new target, Mboweni must cut spending by more than R150bn over the next three years. However, he has been able to identify departmental spending cuts of only R80bn. A further R70bn will have to come out of the wage bill.
The government has made some progress in curbing headcount growth. Since 2013, about 15,000 personnel have been shed through natural attrition and early retirement packages, saving about R5.6bn.
However, most of the losses were of junior staff in low salary bands and entry-level positions, according to Stanlib economist Ndivhuho Netshitenzhe. As a result, government departments have become top heavy with managerial staff.
This trend, combined with a policy of awarding above-inflation wage increases year after year, has meant the number of government employees earning more than R1m has climbed from almost 10,000 in 2006/2007 to 29,000 now, keeping the overall wage bill elevated.
The most plausible cost-cutting option suggested by Netshitenzhe would be for the government to renegotiate the multiyear wage agreement. She estimates that if it could limit wage increases for the majority to the inflation rate and freeze the salaries of senior management, it could save about R14.4bn in 2020/2021, or R88.5bn over three years.
This would plug Mboweni’s gap. More substantial savings (of almost R50bn a year) could be achieved by retrenching 10% of pen-pushing managers, avoiding the more militant blue-collar union members, such as teachers and nurses, who are in the front line of service delivery.
So Mboweni is not out of options, though none will be popular. The trick will be getting President Cyril Ramaphosa and his cabinet to endorse austerity and adopt a business-like approach to teetering SOEs, such as SAA, which they seem hell-bent on sustaining at any cost.
As SA’s most independently minded and outspoken cabinet minister, Mboweni already has the financial community on his side. Now, if he could just get the rest of government on board.
• Bisseker is a Financial Mail assistant editor.
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