Will SA wake up a new country today with a new resolve to clean up its act and live within its means?
With $4.2bn of IMF money in hand at a deliciously low interest rate of something like 1%, finance minister Tito Mboweni and SA Reserve Bank governor Lesetja Kganyago have committed us to living a clean life. The letter they have signed to support the loan contains the commitments they have voluntarily made to provide comfort to the IMF that SA will act responsibly to repay the debt.
The prospect is daunting. If there is one overwhelming tendency we as South Africans have displayed over the past decade, it is that we want to have our cake and eat it too. And as we have advanced further into the democratic era the tendency to delay tough choices to keep vested interests happy has grown and become a distinctive characteristic of the way the ANC governs.
This letter will be published by the IMF within the next week. But it is fair to assume that much of what was contained in the supplementary budget will be among the commitments. This included spending cuts of R230bn over the next two years; a commitment to freeze public-sector pay for 2020/2021 and contain it thereafter; and a plan to arrest the escalating debt-to-GDP ratio by holding it to 87% over the next three years.
These are ambitious commitments and analysts have been universally sceptical. All three credit ratings agencies expressed doubts that cuts of this magnitude would be achievable. It is also not clear that the revenue targets in the budget will be met, given the magnitude of the disruption to the economy due to the Covid-19 epidemic and slow economic recovery that is expected.
The Treasury’s credibility has already worn thin after successive years of overestimated growth and underestimated fiscal deficits. If it fails this time, it will be the death blow.
The execution risks of the plan are high. First there is the problem of the public sector wage bill. It is not yet known whether a court will overrule the government’s attempt to freeze wages. Even if it does not, the risk of a strike is high. Workers have been adamant that they will not be made to pay for government excesses, corruption and overspending. President Cyril Ramaphosa, who tends to wilt in the face of union opposition, has probably not got the stomach for this.
Second is the problem of the provinces and municipalities. They will experience the worst of the cuts, with about R140bn of spending delayed on roads, transport and public works budgets. Municipalities are under intense pressure. Apart from the 25% or so of municipalities that have been characterised by the national government as not sustainable, the Covid-19 crisis has hit them hard too, with revenues plummeting over the past three months.
At the same time, Eskom has begun to squeeze hard, and is setting about collecting its debts — there is R30bn outstanding — with new determination.
Budget cuts to municipalities and provinces will have service delivery and economic consequences. Delaying maintenance of already crumbling infrastructure will be felt in underdeveloped communities. It will be felt as municipalities — badly run, corrupt and unskilled — run out of money to pay salaries when their cash flows dry up. It is hard to imagine that schools will not be affected. Basic education takes a cut of R2.1bn and universities and higher education face cuts too.
But spending too much on municipal roads and school buildings has not been the cause of SA’s financial trouble. If that were the case our economy would probably be growing much faster. The real problem lies with the ANC’s patronage arrangements with the political class, which soaks up revenue, and the countless concessions it makes to its political allies and interest groups to keep its support base intact.
These arrangements are not only expensive for the fiscus but have also made the environment for doing business uncertain, expensive and unattractive. Vested interests have blocked economic reform in a multitude of ways, from investments in broadband, logistics and energy to mining and exploration. Together, they have caused the fiscal crisis.
To satisfy the political class, which includes not just public representatives but the officials and employees and deployees they put in place, SA runs an enormous and expensive government bureaucracy. It has allowed the legal — through procurement rules — and illegal inflation of prices, and has allowed flagrant corruption by politically connected to go unpunished.
This is where SA’s overspending, underinvesting problem lies. But these are not on the Treasury’s chopping block.
• Paton is editor-at-large.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.