Game changer needed to sort this mess

As finance minister Tito Mboweni burns the midnight oil to produce the most important medium-term budget of the past decade, he should be applying only one criterion: whether it will be bold enough to jolt SA out of its death spiral.

With business confidence at a 20-year low and growth dribbling away towards 0% on renewed load-shedding, the medium-term budget policy statement (MTBPS) is one of the last opportunities in 2019 for the government to change the negative narrative about SA.

The 2019/2020 budget is awash with red, mainly because of the need to bail out Eskom. This, coupled with disappointing growth, is set to result in a revenue shortfall of about R50bn this fiscal year.

The consensus is that the main budget deficit is likely to exceed 6% (from a target of 4.7%) and gross debt will blow out to about 60% of GDP (from a 56.2% target). Once contingent liabilities are included, SA’s debt ratio will be up at 70% of GDP the high-risk threshold associated with debt distress in other emerging markets.

In previous years, it was enough for the minister to respond to revenue shortfalls with moderate tax hikes and spending cuts on a pledge of a gradual growth recovery back up to trend over the medium term. Not this time.

Not only is it extremely difficult to cut expenditure when almost 60% of the budget is made up of the wage bill, interest payments and social grants, but even if the government is able to slow the pace of spending so it is negative in real terms, the fiscal picture will hardly improve.

Sanlam Investment Management economist Arthur Kamp estimates that even if growth picks up to 2% over the medium term and Mboweni slashes departmental baselines by 5%-6% (excluding the wage, interest and social protection bill) in the next two years respectively, SA will still post deficits above 5.5% of GDP and the debt ratio will keep rising.

Nor will it be enough for Mboweni to extol the economic reforms contained in his recent growth document and promise that the government is ready to enact them. The government has been promising a growth recovery for years, but it has never materialised, leaving Mboweni with a huge credibility gap to overcome.

The only other option — tax hikes — offers little solution in such a weak economy as they would depress growth further, which would be self-defeating. So, what can Mboweni do differently this time?

He must find a way to change the dismal narrative about SA, to restore confidence, annul fears of a Moody’s downgrade and lower the risk premium that hangs like an albatross around SA’s neck.

In short, the country needs a game-changer. Charging the top state capture miscreants would give it a shot of adrenaline but nothing would unclog the arteries like dealing boldly and decisively with Eskom.

Taking R128bn in cumulative bailouts due to Eskom out of the expenditure line will transform SA’s fiscal picture while a wellrun Eskom would cease to be a drag on growth and investment.

But more than this, Eskom has become symbolic of everything wrong with SA. The Ramaphosa administration has been buying time on Eskom and the economy, but has finally run out of road. If it can’t fix the utility and run it properly, how can it hope to turn the whole country around?

So, the ultimate aim of the MTBPS must be to signal that SA is on a plausible path towards dealing with its most fearsome challenges — Eskom, growth and the fiscus — and therefore that the country warrants a lower risk premium.

So, no pressure then, governor.