South Africa: Mboweni budget raises more questions than answers
Finance minister Tito Mboweni has conceded that a fiscal reckoning looms for South Africa, where public finances are “dangerously overstretched”.
Mboweni made the admission this week while delivering a supplementary budget. Mboweni’s speech has raised more questions than answers about how South Africa will deal with its deepening socio-economic problems and its troubled state-own entities (SOEs).
Most glaringly, the budget was mostly mum on new measures pertaining to Eskom and South African Airways (SAA). SAA’s fate hangs in the balance as it awaits the outcome of a credits’ vote on the national carrier’s recently published business rescue plan.
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South Africa’s socio-economic woes have been heightened by an increasing trust deficit between the African National Congress (ANC)-led government and the public, says political analyst Ralph Mathekga.
This week, Statistics South Africa (Stats SA) released data showing the country’s official unemployment rose in the first quarter of 2020 by one percentage point to 30.1%, one of the worst among emerging-market economies. The data from Stats SA predates the COVID-19 outbreak and the ensuing national state of disaster declared in its aftermath.
That means, 7.1 million South Africans of working age are unemployed. The expanded definition of unemployment, which encompasses discouraged job seekers, takes the figure up to 10.8 million people. In the first quarter of 2020, the formal sector, which includes finance, and agriculture accounted for most job losses.
But as citizens confront an increasingly uncertain job market; the government, too, is faced with precarious public finances underscored by rising debt.
In 2020-2021, the current fiscal year which ends at the end of March next year, the government estimates it will miss its tax collection target by more than R300bn. In addition, Mboweni expects the government to run a 15.7% deficit, which translates into R761.7bn.
“The narrower measure, known as the main budget deficit, is projected to be 14.6% of GDP,” said the finance minister. “This increase is mainly due to the revised revenue projections and pay‐outs from the Unemployment Insurance Fund (UIF),” explained Mboweni.
ANC-led government in spotlight
However, Mathekga points out that the UIF process has been riddled with corruption and adds to scepticism about whether the ANC-led government will make good on the moderate plans articulated in Mboweni’s budget.
“The … ANC has lost legitimacy to tell anyone to tighten their belt. If you tell the unions to take responsibility to save the economy and, at the same time, the government has got a reputation of corruption. No one is going to listen,” warns Mathekga.
“If legitimacy is eroded, government is no longer able to command the nation to go through pain. We need to go through pain to work … our budget,” says the political analyst.
“Even now under COVID-19, you’ve got a problem of mismanagement of the Sassa [South African Social Security Agency] payments, the UIF corruption, the whole thing of the tender system – tender grabbing seems to be under way,” said Mathekga.
The reform question
Mathekga also notes the budget’s silence about SOEs.
PwC economists, including chief economist Lullu Krugel, agree, saying: “There were no specific references in the supplementary budget review 2020 to SAA and very little about Eskom as well.” Furthermore, the PwC economists say none of the plans announced by Mboweni were new.
In fact, the plans in the budget review “would be familiar to anyone who has read the ‘Economic Transformation, Inclusive Growth, and Competitiveness: Towards an Economic Strategy for South Africa’ paper[…]The document has been around since August last year and has not received overwhelming support (or implementation) within national government,” notes the PwC economists.
“This raises strong questions as to the ability of the state to reform the economy out of its recession, and in turn the ability to reduce the fiscal deficit and stabilise public debt,” concludes the PwC economists.