Boxed-in Tito Mboweni resorts to fantasy
SEEING THAT EVENTS HAVE SINCE MADE THE NUMBERS PRESENTED JUST FIVE MONTHS AGO OUT OF DATE, A POST-ELECTION BUDGET WOULD HAVE BEEN A GOOD IDEA
Now that President Cyril Ramaphosa has decisively put debates about the Reserve Bank’s leadership and direction to bed, it’s time to talk about the things that really matter for the country’s immediate economic future.
While politicians decided along the way the Bank and monetary policy were the sexier subject that should have been the centre of attention, the thing that will make or break SA in the short term is fiscal policy, and it hasn’t been getting nearly enough attention.
Sometimes burying one’s head in the sand and looking for distractions elsewhere can be too hard to resist, especially when there is no obvious solution in sight.
So it was that while the country is so concerned about the potential loss of its last remaining investment-grade rating — and the potential for that to lead to capital outflows that will weaken the rand and raise borrowing costs — much time was spent deliberating on the one institution that Moody’s Investors Service isn’t
concerned about. In fact, they and other observers have consistently cited the Bank, its independence, management and policy predictability as one of the country’s key strengths.
That should continue to be the case with the reappointment of Lesetja Kganyago as governor
— four months before his first term was due to expire — for another five years, and the promotion of Fundi Tshazibana and Rashad Cassim as deputies, joining Kuben Naidoo.
Instead of celebrating the Bank and its management as a counter to the negative narrative about black leadership resulting from the mismanagement of other public institutions and companies, some in the ANC seemed determined to break it as well. Perhaps it’s true that misery loves company.
The expression about swallows and summers makes one reluctant to conclude that this one act will change the narrative about Ramaphosa ’ s presidency. He will be challenged again and there will be more cases in which an apparent lack of decisiveness will leave people frustrated.
Now the Treasury can focus on its domain concerning the monetary-fiscal policy divide. Unfortunately it’s not looking pretty. It wasn’t looking that good in February when finance minister Tito Mboweni presented his budget, including a quote from the Bible.
In the absence of a concrete worldly plan, we might have to turn to divine intervention as things have decidedly taken a turn for the worse.
Five months ago, the minister predicted that the country’s debt-to-GDP ratio would be about 60% in 2023/2024, a figure the government conceded last week would prove to be on the optimistic side.
When Trevor Manuel presented his last budget, in 2009, the ratio was a mere 23%, before it started to rise under Pravin Gordhan’s watch during Jacob Zuma’s first term. It has since risen to about 57%.
Even before the 3.2% firstquarter contraction in GDP, Moody’s was predicting that the ratio would be about five percentage points more than the government’s projection in 2024, with a risk that lowerthan-anticipated economic growth and larger rescue packages for state-owned enterprises (SOEs) could push it all the way to 70%.
LIGHT ON SOLUTIONS
So it was not a big shock when the Treasury said last week that there were “significant risks” to its fiscal outlook. Mboweni confirmed this in his budget vote, noting that previous forecasts were “based on growth estimates that are now less likely to be achieved”. It was a bit of a rerun of his budget speech in February, which contained realism about the problem but was light on solutions.
The problems have become bigger and the queue of SOEs looking for handouts hasn’t become any shorter. Seeing that events have since made the numbers presented just five months ago out of date, a postelection budget, with a specific target for the debt-to-GDP ratio and how to get there, would have been a good idea.
A promise to focus efforts “in the short term on addressing the issue of rising debt and on stricter controls of the spending side of government finances” doesn’t quite convey the seriousness of the issue at hand or inspire confidence that the trajectory will be altered in an any meaningful way.
While making this pledge on controlling spending, Mboweni was at the same time preparing to throw yet more money at SOEs, including the SABC, Denel and SAA, which he famously said should be closed down.
He later told the Financial Times he would never put his own money into the airline, which has little to show for the tens of billions of rand it has received from taxpayers over the years.
So what do governments do when faced with a fiscal crisis?
None of the conventional solutions — higher taxes; sharp cuts in spending; privatisation and dealing with bloated workforces at SOEs; and boosting competition in key sectors such as electricity and telecommunications — seem politically palatable.
It’s no wonder Mboweni has to resort to yet more fantasy thinking, such as the urgent need for a state-owned bank to deal with supposed discriminatory practices by established lenders.
He should be the first to recognise that a new stateowned company, which taxpayers will inevitably have to rescue at some point, should be top of a list of things the country can do without.