It’s been a busy week full of reports to digest. Perhaps, in delaying the release of the medium-term budget policy statement by seven days, finance minister Tito Mboweni was being kind and giving everyone a breather.
Unfortunately it speaks more to SA’s approach to policy. Instead of having a budgeting process and then assessing what we can afford, the approach is to take political decisions — such as extending special Covid-19 grants or funding SAA — and then leaving the Treasury to find the resources. It’s a tribute act to former president Jacob Zuma and that conference giveaway of free tertiary education. The more things change, the more they stay the same.
On the latest plan unveiled by Cyril Ramaphosa, the responses can be summed up in a short sentence. Will it be different this time? The president presented a plan to a nation that’s largely fatigued due to previous blueprints and promises that have largely come to nothing.
Almost two years after public enterprises minister Pravin Gordhan said a solution to Eskom’s debt was around the corner, all the president had to offer was an unconvincing reassurance that “a long-term solution to Eskom’s debt burden will be finalised” and that there will be energy security in two years. We never heard that before.
His was not the only game in town and it will take time before we can analyse properly, hopefully on the back of actual implementation.
The IMF had its annual meetings in the past week and touched on a similar subject contained in a report by the Presidential Economic Advisory Committee (PEAC).
The two reports, at least the parts dealing with fiscal policy, should be taken as a lesson on why it’s always important to read the small print. Based on the headlines, the IMF’s World Economic Outlook would look to be a resounding victory for the Treasury’s critics. Borrow, spend and tax the rich isn’t the message one associates with an organisation that became synonymous with hated structural adjustment programmes for poor countries that got themselves into trouble.
The Financial Times quoted the World Bank’s chief economist, Carmen Reinhart, as asking, reasonably: “While the disease is raging, what else are you going to do?”, before going on to advise that first “you worry about fighting the war, then you figure out how to pay for it”.
For Mboweni’s critics, this will be music to their ears. Ramaphosa’s advisory committee is also not a fan of the finance minister’s “active scenario” to stabilise debt at 87% of GDP in 2023/2024. They make the obvious point that this scenario is hardly credible with markets, and hanging on to it will do further damage to the Treasury’s standing.
It’s also important to note that part of the reason the country’s fiscal position was in a dire state was due to the Treasury consistently getting its forecast wrong — optimistic assumption on growth led to the government pencilling in revenue numbers that never materialised, which translated into budget deficits that were way off forecasts.
That hasn’t improved since Mboweni became minister in 2018. In fact, most of the budget statements he has presented have been rendered irrelevant within a couple of months, a factor not helped by the long lag with which the Treasury updates its growth forecasts when conditions change. So for anything remotely up to date, investors have tended to rely on others such as the Reserve Bank and private-sector economists.
But it would be a huge misreading to interpret the IMF and PEAC reports as an endorsement of runaway spending for a country that is set to run a budget deficit of more than 15% and is unloved by bond investors. The IMF advice is aimed at countries that are able to borrow at record-low interest rates close to zero.
So don’t expect Mboweni to throw caution to the wind at the end of the moment. Even if he decides to borrow more, it is not clear how long the appetite for SA debt, even at current rates, will persist. This is often forgotten by his critics on the Left, who then come up with outlandish ideas such as the central bank magically creating R1-trillion out of thin air in a “temporary” burst of money creation.
Same with the presidential advisers. Unlike those who believe that money grows on trees and that SA — which hasn’t seen any austerity in the past decade despite that slogan being appealing — can borrow in perpetuity with no consequence, they recognise that tough decisions will have to be made. In that sense, their differences with the Treasury are not as stark as they seem at face value.
The question with their alternative is whether it is any more credible than what’s already on the table, with its emphasis on cutting the public-sector wage bill, which they said is likely to be “less growth-compromising” than cuts in infrastructure investment. The other option is to reduce welfare payments to the poorest in society, which would be hard to defend, morally or politically.
“Further borrowing to fund government dissaving in the form of public-service wages or increased transfers will simply deepen the fiscal crisis,” the report notes. Rather naively, it also expresses hope that “there is a good chance that the courts will uphold government’s argument of force majeure” on the wage increases it has so far refused to honour. The naiveté is the assumption that a court ruling will put the matter to rest and the implication that the government won’t eventually cave in.
Mboweni is going to have his work cut out coming up with something believable.
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