It is a big week. On Tuesday the government hosts an infrastructure conference aimed at showcasing projects to financiers and investors. Because increasing investment spending is an indispensable part of the strategy to dig SA out of the low-growth trap, it is important that the government gets this right.
On Wednesday finance minister Tito Mboweni presents a supplementary budget to parliament, where he will announce the biggest budget deficit on record and a dramatic contraction of the economy.
And on Thursday creditors are due to vote on the SAA rescue plan, unless they are interdicted from doing so. The business rescue plan is five months overdue and makes an enormous call on the fiscus for the whole thing to fly.
The three events are connected, but not nearly as much as they should be. For instance, does Mboweni know that the supplementary budget he has sweated over in Magoebaskloof is supposed to include another R10.4bn to restart a restructured SAA? The draft business plan, which has the fingerprints of public enterprises minister Pravin Gordhan all over it, states that the government will provide start-up capital and also pay outstanding liabilities to aircraft lessors, staff and passengers. This is on top of the R16.4bn already committed to in February to repay the lenders.
Has Kgosientsho Ramokgopa, the point man on infrastructure in President Cyril Ramaphosa’s office, had a conversation with Mboweni on what will be left of the government’s public infrastructure budgets after Wednesday?
Mboweni must reprioritise R130bn of expenditure towards health and welfare. The first point of call for spending cuts over the past three years has been municipal and provincial infrastructure budgets. Borrowing more to fund infrastructure projects is also becoming impossible. On Wednesday Mboweni must commit to setting SA on the path of debt reduction.
The adjustment budget looks like a horror story. Usually, the Treasury’s forecasts are kept under lock and key until the moment the finance minister begins to speak. This time, though, Mboweni has already presented the Treasury projections to the social partners in Nedlac. After the meeting he tweeted a picture of his favourite graph from the presentation: a yawning set of jaws depicting the widening gap between expenditure and revenue. The shape, he said, reminded him of a hippopotamus mouth. According to the presentation, the Treasury is expecting a deficit of more than 14% and an economic contraction of 6.4% for 2020.
With this scenario unfolding, the funding of the business rescue of SAA looks improbable. Unfortunately, so do many of the investment projects — some of which have been on the wish list since 2014 — that Ramokgopa hopes to push into the pipeline. While public investment has been declining for reasons that are not primarily financial, the fact is that while it is more urgent than ever to mobilise funds for investment, it will also be much more difficult.
Despite the circumstances — SA’s biggest budget deficit since World War 1 and its biggest GDP contraction since 1930 — Mboweni somehow maintains an ebullient disposition, curiously fascinated by the intellectual and historical circumstances of our times. The significance of the hippo graph, he said, was that it demonstrated his “Herculean task” to close its mouth, certainly on a par, if not more difficult, than the labours of Hercules.
However, it is another of Mboweni’s much-loved mythological metaphors that best sums up where the country’s public finances are heading after the shock of the Covid-19 crisis. When it comes to the growing debt burden, the sword of Damocles hangs over our heads.
Speaking in the National Council of Provinces last week, Mboweni warned that a sovereign debt crisis — where the country is unable to raise funding to service its debt — is not far off if things continue on their present trajectory. In another graph in his Nedlac presentation, the debt-to-GDP ratio is projected to climb so steeply that by 2028 it reaches 113% before disappearing off the top of the page.
Along with a change in the composition of government expenditure to favour investment to avert the impending doom, economic reforms that can increase the efficiency of the economy and attract investment are vital.
Mboweni has, at key points, reiterated the significance and urgency of microeconomic reform as set out in his growth strategy paper, which is now close to a year old. But there has been little co-ordination and commitment to realising these reforms as far too many cabinet ministers focus on building their own political careers.
All of this requires a government that thinks together, plans together and acts together. This is something only Ramaphosa can make happen. The sword hangs over his head.
• Paton is editor at large.
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