LUKANYO MNYANDA: IMF gives glimpse of government divisions and promises likely to be broken

The past year has been one of notable anniversaries for SA.

The Reserve Bank marked its centenary at end-June 2021. On February 4, SA celebrated a quarter of a century since its constitution came into effect.

Never mind what tourism minister Lindiwe Sisulu’s ghost writer had to say, it is one of its greatest achievements so far. In the midst of all the failures around, it is strange that ANC leaders, with the exception of justice minister Ronald Lamola, are so reluctant to defend the one thing they should be proud of.

The National Economic Development and Labour Council (Nedlac) was launched 27 years ago this month. It was one of the early inventions of the new democratic order, with one of its stated roles being “to facilitate consensus and co-operation between government, labour, business and the community”. 

So it was rather surprising when Ramaphosa said last week that the social partners have “100 days to finalise a comprehensive social compact”. How will they achieve in a little more than three months what they have failed to do in almost three decades?

For Ramaphosa, the constant search for consensus feeds the notion that, given the choice, he will choose to kick the difficult decisions down the road. And so it was with the basic income grant (BIG). It was widely reported ahead of the state of the nation address (Sona) that his economic advisory council was heavily divided on whether SA should institute a BIG. Perhaps people overestimate how big that divide is.

From what I could see, a clear majority was concerned about the long-term affordability of a permanent expansion of social grants in the face of a weak economy and the short-term nature of the boost from a surge in commodity prices. It also raised the possibility of harm to the very people it is supposed to help if the price to pay is to cut investment in other areas. 

Lacked engagement

Even in this benign environment in which interest rates globally are at historic lows, SA has punishing borrowing costs, with the 10-year yield north of 9%. With the global inflation picture having turned, those rates are headed one way and that is not downwards.

Then you also had a minority report making what amounts to an emotional argument that no person with a social conscience would disagree with. Unfortunately it lacked any serious engagement with economics or potential trade-offs, reducing the debate pretty much to labels between progressives who care about the poor and social stability, and cold-hearted “neoliberals” who can’t see the obvious.

Ramaphosa took the middle road, announcing that the emergency Covid-19 social relief grant, which was due to expire in March, will run for another year, while acknowledging “extreme fiscal constraints”. This conveniently takes him past the ANC elective conference in December.

It might as well have been a coincidence that the IMF released the results of its most recent annual consultation with SA — in which it concludes and reveals that the government agrees with its assessment of “no fiscal space” for a BIG — the day after the Sona.

Considering that the consultations occurred in December, it is clear from the report that the IMF was well briefed — it correctly called the one-year extension to the Covid-19 grants — making this an important document if one wants to get a sense of the debates within the government. Reading it carefully, one might also get a sense of which promises are likely to be broken. 

Never mind consensus with social partners, the IMF report makes it clear that the government itself is far from united on a number of important issues.

Scapegoat foreigners

Take Operation Vulindlela, which sits in the Treasury and oversees the implementation of microeconomic reforms. On this the IMF quotes the finance minister, Enoch Godongwana, as affirming a commitment to implementation “without delay”, while also stating that “some negotiations will be challenging”.

Negotiations with whom, one might ask. Thulas Nxesi at labour and Gwede Mantashe at minerals & energy? There is home affairs minister Aaron Motsoaledi too. SA wants to import skills but is also eager to scapegoat foreigners for its high unemployment rate.

One of the standout promises by Godongwana when he presented the medium-term budget policy statement in November was that there would be “tough love” for failing state-owned enterprises (SOEs). Not so if you read between the lines, with the IMF, presumably after being briefed by Treasury officials, concluding that National Treasury's support for SOEs is “likely to be higher than planned”. 

Something that was not in the medium-term budget but has apparently been discussed with the IMF is the possibility of the government taking an “upfront assumption” of part or all of Eskom’s debt. The number of times since 2018 that public enterprises minister Pravin Gordhan has promised an imminent solution to Eskom’s mountain of debt has become a long-running joke.

On spending, the part that the IMF is expecting to be underexecuted — capital expenditure — is probably the one where missing targets on the upside would be welcome. The IMF also expects slippages on commitments to rein in public-sector wage growth, with one-off allowances that were agreed as a short-term compromise to last a bit longer than that.

While many assume that socialist ideologues at trade & industry, led by Ebrahim Patel, have it all their own way on policies such as localisation, the IMF indicates that there is contestation within the government and that an “internal discussion is ongoing”. 

Some have an appreciation of what is obvious to everyone else, such as the policy hitting “capacity constraints” — something that will result if you take out competition and have customers relying on a few firms. For the customers, the result is shortages, bad quality and higher prices.

Wouldn’t it have been interesting if the government had told the IMF how many days it had given itself to reach consensus, so that we might have a reasonable expectation of when we will see delivery.