Tell people how bad things are Mr President
When will President Cyril Ramaphosa and Finance Minister Nhlanhla Nene let the public in on the news of just how bad a state the country is in financially?
The other day Ramaphosa said in a television interview: “This hardship will not last forever and growth is going to happen. It is around the corner and soon we’ll be able to alleviate the difficult burden that our people are bearing at the moment.”
Anybody with even a little understanding of SA’s economy and public finances knows that this is nonsense. Relief is not around the corner. There is no guarantee that growth “will happen”.
The outlook is highly uncertain. Most forecasts for 2018 and 2019 have GDP growth lower than population growth. No progress has been made on making the structural reforms needed to attract investment.
In fact, the hardship Ramaphosa talks about is hardship that is still to come in October, when the government will again be forced to cut budgets for housing, school building, roads and infrastructure and will be unable to find more money for healthcare and hospitals, which are in a state of collapse.
But the hardship message has not and will not go out. Ramaphosa glosses over the looming problems, giving the nod to above-inflation increases in the public sector.
Nene, who equally should be telling the truth about where we stand, is silent. When faced with an opportunity to speak to the news media — like he was at a special World Economic Forum meeting in Johannesburg — he takes care not to say anything worth quoting.
Asked on that occasion whether he had concerns about Eskom, Nene said he had none. The government had appointed a new board and executive team, he said, repeating news now six months old. It was now looking into “stabilising Eskom’s finances”, he said without any further explanation, after which the business model would receive attention.
What he should have said is that Eskom poses a major risk to the national economy and public finances. It is the number one problem on our agenda. The odds are building that the power utility will need a bail-out. If, when it goes to the bond market in August as planned, it is able to raise funding at a reasonable cost, this risk might diminish. There is a school of thought though — expressed by people in the government and credit ratings agencies — that Eskom is going to need government support regardless.
Add to the Eskom burden the costs of the funding needs of other state-owned enterprises (SOEs). Going by Public Enterprises Minister Pravin Gordhan’s SOS to banks in June when he asked for help funding SOEs, this could be in the region of R30bn. Gordhan and Nene asked banks and asset managers whether they could consider some sort of aggregated loan facility.
Pockets of debt are building throughout the state system. Over the past year municipal debt to Eskom rose 44% to R13.6bn, according to the company’s results. Municipal debt to the Department of Water and Sanitation’s water trading entity rose sharply as local governments failed to keep pace with payments to bulk water suppliers.
This in turn puts stress on formerly healthy SOEs such as the Trans Caledon Tunnel Authority.
RELIEF IS NOT AROUND THE CORNER. THERE IS NO GUARANTEE THAT GROWTH ‘WILL HAPPEN’. THE OUTLOOK IS HIGHLY UNCERTAIN
There are other contingent liabilities on the government’s balance sheet. Legal claims against government departments are estimated at R35bn. Obligations of the Road Accident Fund are actuarially estimated to be R189.2bn. Then there is the R30bn overshoot in the public sector wage settlement, which is going to mean trimming an equal amount off national and provincial budgets to accommodate this.
As well as uncertainty on the growth outlook, revenue collection is uncertain. The year is proceeding apace as the South African Revenue Service continues without a permanent commissioner and with a depleted staff.
Nene’s spokesman, Jabulani Sikhakhane, says Nene will not speak to the news media about the funding needs of the SOEs. He has, however, committed to speak to Business Day after this week’s Brics summit about SA’s broader fiscal challenges.
Ramaphosa, though, smiles and waves and talks about ANC unity and emulating the leadership of Nelson Mandela. ANC provincial dynamics have kept him very busy of late.
Up next are the ANC list conferences, which promise to be even more distracting and draining. Then we will have an election, which will be no time for the truth to be told. Instead, expect more lies and easy victories claimed.