Recovery plan now faces Mboweni test
• October speech needs to flesh out implementation • Meaning for SA fiscal position unclear
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”.
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: