Re­cov­ery plan now faces Mboweni test

• Oc­to­ber speech needs to flesh out im­ple­men­ta­tion • Mean­ing for SA fis­cal po­si­tion un­clear

Business Day - - FRONT PAGE - Lynley Don­nelly

Pres­i­dent Cyril Ramaphosa’s long-awaited eco­nomic re­con­struc­tion and re­cov­ery plan will face its first test in the up­com­ing medium-term bud­get pol­icy state­ment (MTBPS) in which the gov­ern­ment will out­line how it will weigh up con­sol­i­dat­ing its bat­tered fi­nances with ef­forts to sup­port growth and re­cov­ery.

Though Ramaphosa said the plan will bal­ance the need to re­store fis­cal sus­tain­abil­ity with eco­nomic growth, econ­o­mists and an­a­lysts said that proof of im­ple­men­ta­tion and a clearer pic­ture of what it means for the coun­try ’ s fis­cal po­si­tion are needed to ce­ment its cred­i­bil­ity.

Ramaphosa an­nounced the plan — which hinges on an ex­panded pub­lic em­ploy­ment pro­gramme, a R1-tril­lion in­fra­struc­ture ef­fort mostly lever­aged from the pri­vate sec­tor, a pledge to ac­cel­er­ate en­ergy gen­er­a­tion, and a raft of struc­tural eco­nomic re­forms — at a joint sit­ting of par­lia­ment on Thurs­day.

Ac­cord­ing to modelling by the Trea­sury, im­ple­men­ta­tion can raise growth to 3% on av­er­age over the next 10 years.

The plan com­mits to de­liv­er­ing on long promised re­forms such as pol­icy in the min­ing sec­tor and the over­haul of rail, road and port net­works to re­duce the cost of busi­ness — but in­cludes sur­prises such as the de­ci­sion to ex­tend the Covid-19 spe­cial grant for a fur­ther three months, which will have im­me­di­ate ram­i­fi­ca­tions for an al­ready stretched fis­cus.

It will be left to fi­nance min­is­ter Tito Mboweni to flesh out how the gov­ern­ment will de­liver on Ramaphosa’s prom­ise to bal­ance fis­cal sus­tain­abil­ity with eco­nomic growth.

“The MTBPS now has to square the cir­cle in terms of be­ing able to put those pri­or­i­ties in place while en­sur­ing that we stick to a fis­cal con­sol­i­da­tion path,” BNP Paribas econ­o­mist Jeff Schultz said.

The sur­prise de­ci­sion to ex­tend the Covid-19 re­lief grant, along with all the top-ups made to ex­ist­ing grants, will im­me­di­ately add R20bn-R25bn to gov­ern­ment spend­ing in the 2020/2021 fis­cal year, about 0.4% of GDP ac­cord­ing to Schultz, and is likely to come from spend­ing repri­ori­ti­sa­tion.

“The MTBPS is go­ing to be very im­por­tant in terms of where th­ese spend­ing repri­ori­ti­sa­tions are likely to come from and in as fis­cally neu­tral a fash­ion as pos­si­ble to avoid fur­ther slip­page in debt met­rics.”

But Ramaphosa said that in

re­duc­ing its spend­ing, the gov­ern­ment will di­rect funds to­wards poverty alle­vi­a­tion, in­fra­struc­ture in­vest­ment and sup­port for eco­nomic de­vel­op­ment, as well as re­duc­ing sta­te­owned en­ter­prises’ (SOEs ’) re­liance on the fis­cus.

Mboweni is set to de­liver the MTBPS on Oc­to­ber 28 af­ter re­quest­ing a post­pone­ment, in part to grap­ple with the im­pli­ca­tions of the re­cov­ery plan for the bud­get process.

In the sup­ple­men­tary bud­get in June, Mboweni had al­ready warned that SA risks a sov­er­eign debt cri­sis if it is un­able to right its fi­nances, with gov­ern­ment debt lev­els ex­pected to hit close to 82% of GDP by the end of the fis­cal year.

The plan is likely to be met with some scep­ti­cism, Mo­men­tum In­vest­ments econ­o­mist San­isha Packirisam­y said, adding that “the crux of this is go­ing to be whether we see im­ple­men­ta­tion rather than just another eco­nomic plan”.

To en­sure de­liv­ery Ramaphosa said a num­ber of over­sight bod­ies will be es­tab­lished, start­ing with a Na­tional Eco­nomic Re­cov­ery Coun­cil made up of cab­i­net mem­bers to “pro­vide po­lit­i­cal over­sight and en­able rapid de­ci­sion-mak­ing”.

In ad­di­tion to fast-track eco­nomic re­forms, a joint ini­tia­tive at the pres­i­dency and the Trea­sury has been es­tab­lished un­der the Op­er­a­tion Vulindlela ban­ner.

But Packirisam­y said the gov­ern­ment will need to trans­par­ently re­port on its progress and put ac­count­abil­ity mea­sures in place should state de­part­ments fail to de­liver on the tar­gets set out in the plan.

Packirisam­y said the growth tar­get may be dif­fi­cult to achieve par­tic­u­larly as the time­lines for cer­tain el­e­ments of the plan ap­pear “tight to achieve”. For in­stance, as part of the pack­age Ramaphosa said the Risk Mit­i­ga­tion Power Pro­cure­ment Pro­gramme — in­tended to se­cure emer­gency power for a con­strained grid — will con­trib­ute 2,000MW of emer­gency sup­ply within 12 months.

Although the in­fra­struc­ture drive — which aims to un­lock R1-tril­lion in fund­ing from the pri­vate sec­tor is to be lauded, with­out rem­e­dy­ing SA’s dire busi­ness con­fi­dence lev­els by de­liv­er­ing on long over­due struc­tural re­forms — the pri­vate sec­tor is un­likely “to mean­ing­fully par­tic­i­pate in the in­fra­struc­ture projects”, she said.

To fi­nance the “huge in­fra­struc­ture drive” the gov­ern­ment will struc­ture “in­no­va­tive fi­nanc­ing mech­a­nisms” and make th­ese avail­able to the mar­ket, ac­cord­ing to the pres­i­dency.

It will also amend reg­u­la­tion 28 of the Pen­sion Funds Act to en­able bet­ter ac­cess to longterm fi­nance for de­vel­op­ment” and al­low pen­sion funds to in­vest in “prof­itable, well­pre­pared and bank­able projects while pro­tect­ing the in­tegrity of pen­sion funds them­selves”.

Times/Esa Alexan­der Sun­day

Pres­i­dent Cyril Ramaphosa presents the SA Eco­nomic Re­con­struc­tion and Re­cov­ery Plan to a joint sit­ting of par­lia­ment on Thurs­day. The plan aims to ex­pe­dite, in a sus­tain­able man­ner, the re­cov­ery of the econ­omy from the ef­fects of the Covid-19 pan­demic and the ac­com­pa­ny­ing lock­down. / Let ’ s do it:

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