Mboweni’s joviality hides the grim truth
Finance minister Tito Mboweni was in fine form delivering his budget speech on Wednesday, but the jovial mood in the National Assembly belied the grim numbers. And though the message of the Aloe ferox plant the minister brought along was meant to be about planting the seeds of the future, it was more bitter than sweet. SA is just beginning to total up the enormous cost of the years of state capture and corruption and damage done to key economic institutions such as Eskom and the SA Revenue Service (Sars) — and the budget reflected that in the Eskom bailout as well as in yet another revenue shortfall. The deficit and debt ratios didn’t feature in Mboweni’s well-crafted speech but they came in worse even than in October’s medium-term budget, which had shown a sharp deterioration in SA’s growth and fiscal outlooks. Revenue is now expected to come in more than R43bn short of last February’s budget estimates, up from October’s R27bn estimate, reflecting further efforts to fix the mess at Sars as well as the impact a weak economy has had on the corporate tax take, which brings the cumulative revenue shortfall for the past five years to almost R150bn.
The projected deficit for the current year has risen to 4.2% of GDP, rising to 4.5% next year before it falls to 4% in three years’ time — and that means the deficits of the next two years are now almost a whole percentage point higher than last February’s forecast. The public debt ratio will hit a peak of over 60% in 2023/24 and, instead of talking ratios, Mboweni’s speech put the numbers in terms that have resonated with a broad audience — the government borrowing R1.2bn a day
(except on weekends) and paying R1bn a day in interest costs.
Previously, one of the things that reassured rating agencies despite worsening ratios was that the government managed to stick to its selfimposed expenditure ceiling despite spending pressures, even though some argue the ceiling was set too high relative to what SA can afford.
But it couldn’t slice and dice enough to fit in the R23bn a year to Eskom, so it will in effect breach that ceiling by R16bn in the next three years.
Countering the grim numbers were the positive signals on the two most key issues for SA’s fiscal fortunes: state-owned enterprises (SOEs) and the public sector wage bill. But even those signals were mixed or muted. Mboweni sent a clear message that SOEs would no longer be bailed out unless they committed to restructure their operations and their finances and effectively went under curatorship. The rescue package for Eskom seems to entrench that principle, but the details of the financial methodology and of what and when Eskom is going to deliver by way of cost cuts, efficiencies and restructuring are still unclear. And the politics of the decisions still to come will be rough and the outcome uncertain.
Equally, while the government will finally cut the ever-rising public-sector payroll, it’s mainly doing it the easy way — using natural attrition and a voluntary early retirement package, which could save R20bn by shedding 30,000 civil servants in the 55- to 59-year age group, some of whom are likely to be experienced people. Even the limited moves, which also include plans to tackle automatic bonus and “notch” payments, are likely to start a fight with labour. But none of it amounts to starting the larger conversation on how big the civil service should be and how it should be measured and rewarded.
So while the crucial signals on SOEs and public-sector pay will help, the question is whether they are strong and unambivalent enough to convince rating agencies and investors. If not, the costs of servicing government debt will keep rising and consuming ever more of SA’s tax money in a global environment less favourable to emerging markets. And as the government ducks and dives just to hold the fiscal line, nobody is asking how large the state should be and what SA can realistically afford over the longer term.
While crucial signals on SOEs will help, will they convince rating agencies and investors?