A CRISIS EVERYONE SAW COMING
If recent history is a measure, SA’S debt to GDP ratio will continue to hurtle on towards the 100% mark
The Covid-19 pandemic did not break our economy. It merely sped up the journey to where we were headed anyway: into the arms of the International Monetary Fund (IMF) and other loan sharks. It didn’t need to be this way, but here we are. We are here because of political spinelessness.
The warnings about where we were headed have been there for ages. Back in October 2018, finance minister Tito Mboweni told a joint sitting of parliament’s standing committee on finance and the standing committee on appropriations that our economic growth was pathetic.
“If we do not do anything in our situation in outer years we will face a debt-to-gdp ratio at or about 60% of GDP,” he said. “When that happens we are very close to having serious conversations with the IMF. Whether you like the IMF or not — ideologically or practically — if we end up in a debt trap, that’s where we will end up.”
He was not the first to ring the warning bells. Back in February 2016, our debt to GDP stood at 44.3%. The then finance minister, Pravin Gordhan, (he had been rushed back into the job following the disastrous four-day term of the hapless Des van Rooyen, a Gupta
appointee) said in his budget speech that his target was to stabilise debt at 46.2% of GDP in 2017/2018.
“These budget proposals signal government’s commitment to a prudent, sustainable fiscal trajectory,” he said.
Gordhan must have been joking. After that budget speech he was fired and replaced by fish-out-of-water Malusi Gigaba. Meanwhile, president Jacob Zuma kept the fiscal taps open, racking up even more debt and giving the finger to those who warned of disaster. By October 2018 National Treasury director-general Dondo Mogajane was at one with Mboweni, warning that a loan from the IMF “is something to avoid at all costs”.
Last week Mogajane told journalists that debt levels risked breaching the 100% mark in 2023/2024 in a “passive” scenario. By “passive scenario” he meant that if SA continued along the “spend, spend, spend” path it was on. He said a more “active” approach — doing what needs to be done — would see debt stabilising to around 87.4% by that date.
If history is a measure, what do you think SA will do? It pains me deeply to say that the history shows that debt levels will hurtle on towards the 100% mark. The reason is political spinelessness. It is failure to make choices now that will bear fruit in the future.
The current ANC administration led by President Cyril Ramaphosa is as bad at this as the previous one was. In 30 months of the Ramaphosa administration there has been no indication that culture and practice have changed an iota. Debt is still ratcheting up as relentlessly as it did between 2009 and 2017.
It continues to surprise me that whenever the budget is looming or is delivered, we look to the finance minister and his team. The truth of the matter is that without political backing and the requisite political will, there is nothing these people can do. They need the political centre to cohere and to protect them to do the job they have been given. If their efforts to stabilise our finances are undermined by political players then, well, we are going nowhere.
President Thabo Mbeki empowered his finance minister and fiercely protected the central bank. Nowadays the president hardly ever stands up for his finance minister or the independence of the Reserve Bank. Even the deputy minister of finance has had a go at the bank. It’s a free-for-all, accompanied by a deafening silence from the Union Buildings.
Ramaphosa, the man in charge, has done precious little to bring coherence to ANC and government economic policy or to allow Mboweni and Co to rein in rampant government spending. He talks a good game but the numbers don’t support him. He is not backing his own team. He cannot even curb the damaging, nonsensical cigarette ban, clearly fearing minister
Nkosazana Dlamini Zuma.
This is a very negative prognosis. However, it is based on the history. Ramaphosa does not have the courage to stop this debt spiral.
The ANC led by President Cyril Ramaphosa is as bad at keeping debt under control as the one led by Jacob Zuma was