The rubber hits the road on President Cyril Ramaphosa’s still shiny new government of national unity (GNU) week after next when finance minister Enoch Godongwana delivers his medium-term budget policy statement (MTBPS).
In truth, Godongwana should have delivered a new budget for a new government after the May 29 election, but I suspect everyone in the GNU, including the ANC, was so surprised to find themselves in it they all just silently let it go.
As a result, from the formation of a government to the first formal utterances from the Treasury has been unduly long, and the wounded are already groaning on the side of the road. Basic education minister Siviwe Gwarube of the DA is beside herself over the cuts provincial education departments are having to make. Teachers are being let go and the numbers of pupils keeps piling up.
The moment is pregnant. Ramaphosa’s reform programme is at a standstill — beyond allowing the private sector to generate electricity, literally nothing has happened on the ground in freight or rail or the ports, and crime shows little sign of abating. The concession of the container terminal in Durban to a private operator, agreed a year ago, has just been delayed for a further six months at least. In the Eastern Cape kidnappings threaten the coming holiday season.
Fortunately for Ramaphosa, the mere formation of a coalition government has been met with enthusiasm in the markets. They’re the people we owe money to. The local stock market is up and so is the rand. Inflation is down. But these are all global trends merely carrying us along with them, and the president will need his finance minister to create some real political space for him when he stands up to speak on October 30.
The ANC has wrecked the infrastructure of the economy it inherited in 1994 and the means to create the wealth it would need to stimulate anything just doesn’t exist any more.
It’s a tough ask. The pressure on Ramaphosa from his own party and its two main splinters, the EFF and Jacob Zuma’s MK, and the left in general, is for a fiscal stimulus package to ignite job creation. That’s what the left think would create jobs anyway, and there's no convincing them otherwise.
But there'll be no stimulus. There is simply not enough money. The ANC has wrecked the infrastructure of the economy it inherited in 1994 and the means to create the wealth it would need to stimulate anything just doesn’t exist any more.
Worse, Godongwana finds himself at the sharp end of promises to get the national debt under control. When finance ministers make fiscal noises to please lenders and then carry on borrowing regardless, they damage their credibility. And credibility matters when you’re asking for money.
So Godongwana faces a real dilemma — does he create a fiscal rule, a debt ceiling of sorts, that limits the amount the Treasury can raise in the markets, expressed perhaps as a percentage of GDP? The IMF reported this week that global public debt is now above $100-trillion for the first time as countries try to stimulate growth. Debt would equal 100% of global GDP in 10 years.
SA was one of the countries singled out (with the UK, Brazil, France and Italy) where debt was expected to continue rising. “Countries should confront debt risks now with carefully designed fiscal policies that protect growth and vulnerable households, while taking advantage of the monetary policy easing cycle.”
It was an “opportune time” for these countries to start rebuilding “fiscal buffers”, which usually involves raising taxes or cutting spending or both. Delaying action “will make the required adjustment even larger.”
Our debt is about 75% of GDP and we pay the equivalent of R2bn a day in interest. When your country is able to grow at only 0.5% a year while it is paying about 10% on its debt, it means even if you never borrow another cent your debt is simply going to grow. You’re in a classic debt trap and talk of stimulus becomes just ridiculous.
At best Godongwana might try to stabilise our debt, even if he doesn’t create a firm rule. But you can’t stabilise your debt in a country where services are ailing and the unemployment queue is growing. Something has to give. Even right of centre economists in the UK are urging the new Labour chancellor, Rachel Reeves, not to cut too deep when she delivers her first budget, also on October 30.
But if Godongwana is careful he might be able to make not one but two rules in the MTBPS. The first would be obvious — he cannot continue to borrow to fund the running costs of the state, whether to pay teacher or nursing salaries or buy medical gloves or ammunition for the police and the military. To meet those costs he will have to raise taxes or shuffle spending priorities in cabinet.
But there’s no reason borrowing for investment should be in any way restricted provided the investment is real, properly managed by experienced and responsible people, and promises a return. The Treasury sits on R900bn earmarked for infrastructure, and between them Infrastructure SA in the presidency, Nedbank and the Treasury itself have long lists of projects needing financing. My rough count has more than 150 projects in the offing, though some might be duplicated and some might not be justifiably regarded as infrastructure.
If there were a way to supercharge those projects and sit them under ministers who aren’t going to steal the borrowed funds, who knows what is possible here? Rail is probably not available for a while now, but electricity transmission and new energy projects would attract mountains of money. New farming infrastructure and the digitalisation of the entire home affairs infrastructure and operation are other areas.
There are DA ministers here itching to get projects going and they are free to act in ways Ramaphosa cannot grant his party colleagues in cabinet. He and the ANC would probably get the credit for anything the DA ministers did right anyway, so what’s not to like?
Borrowing to fix our big cities would attract money too, and police minister Senzo Mchunu, just for his sheer cojones could be designated an honorary infrastructure project in his own right. A safe and clean SA would make a return, but it’s too big a promise for the finance minister to make at the end of the month. He should start with the easy stuff.
• Bruce is a former editor of Business Day and the Financial Mail.
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