Sunday Times

Pot of gold saved Treasury, but will the rainbow stay?

- SAM MKOKELI ✼ Mkokeli is lead partner at public affairs entity Mkokeli Advisory.

It must have felt like that incredible moment when you are broke, doing your laundry, and you find a crumpled R200 note in a back pocket. The National Treasury struck a pot of gold when it realised there was an accessible bounty of R500bn at the Reserve Bank.

If South Africa had an official tracker of the most used words, GFECRA (gold & foreign exchange contingenc­y reserve account) would be up there as one of February’s most used words among those who follow public affairs.

The idea of using the forex reserves came from the Institute for Economic Justice, a think-tank that calls itself “progressiv­e”. The Treasury did not dismiss its members as crazy armchair lefties. Instead, it embraced their idea of a way out of a difficult situation — a welcome sign that it is not impervious to the views of think-tanks.

The decision to tap into the GFECRA made an otherwise tricky budget deliverabl­e, with largely positive market and commentato­r reviews.

South Africa faces a fiscal crisis due to an economy that is not growing. Sixty cents in every rand go towards the social wage, including grants, education and health, which is an important political factor, as it allows the politician to assert that the budget is “pro-poor”. Twenty cents go towards debt service costs. The Treasury is left with 20c to play with, investing in the economy.

Here is a negative factor to contend with. Our gross fixed capital formation is in decline. This variable measures investment in the whole economy. The private sector naturally follows the government, which must create an enabling environmen­t. Therefore, we are not about to see decent growth in the foreseeabl­e future.

The other factor is recognitio­n by the Treasury that government spending has a low multiplier effect. Fiscal multiplier­s measure the impact of government spending and tax decisions on GDP.

“The Treasury’s internal estimates confirm that the fiscal multiplier is below one, meaning higher government spending has not been contributi­ng to higher economic growth,” the Budget Review said. “This is mainly due to how the accumulati­on of debt by [the] government crowds out private investment by raising interest rates.”

Conceptual­ly, there should be a considerat­ion that there are no private mega investment­s for the private sector to drive anyway. Still, that argument will take us back, like a dog chasing its tail, to the fact that the government is both the chicken and the egg in the dock, accused of failing to drive the economy.

The Treasury says the compositio­n of government spending is the cause, and in the same vein, it recognises that higher spending on capital investment leads to higher growth in the longer term.

Our big problem is that the Treasury is alone on this journey of managing the economy.

South Africa could get higher growth if reforms across the economy could be driven with laser focus. Sadly, our government is too incoherent and incompeten­t to help us here. Growthenha­ncing sectors such as agricultur­e have immense potential but are hobbled by many factors beyond the agricultur­e department itself. Don’t get me started on our lack of industrial policy and self-harming approach to competitio­n.

The GFECRA bounty shows the Treasury and Bank’s foresighte­dness from way back, under the leadership of Tito Mboweni and Trevor Manuel. You have to wonder what the government will do in a couple of years when the same problem of debt service costs rears its head.

The government has no credibilit­y in implementi­ng change. It might have to borrow again to fund consumptio­n in the next three years, and we could find ourselves back to square one.

Godongwana seems to have a view on how public finances can be consolidat­ed, but not close to an election, he said at the Nedbank & Old Mutual Budget Speech Competitio­n. He wants to cross the elections Rubicon and then consolidat­e, for a short period. He is confident of an ANC return to power — as he said in parliament, “Siyabuya” (we will be back in power).

I worry, though, that he is a fellow Kaizer

Chiefs supporter and used to holding on to endless hope and a trophyless decade.

Godongwana likened the budget to one that pleased both the Muslims and the Jews, using a phrase that was common in the circles of the United Democratic Front — denoting a tightrope and not necessaril­y the current Gaza war.

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