Like many South Africans on October 25, I will be closely watching Finance Minister Malusi Gigaba’s first Medium-Term Budget Policy Statement (MTBPS). To say that this will be one of Gigaba’s most important policy speeches would be an understatement. It will be his first and most important opportunity to lay the groundwork towards rebuilding some semblance of public trust towards the Treasury and by extension South Africa’s economy.
When the credit ratings agencies first downgraded South Africa in the wake of the reshuffle that saw Gigaba appointed, they cited “deteriorating standards of public finance” as one of their concerns. Gigaba now has an opportunity to show they were wrong.
The economic backdrop against which Gigaba will be presenting his MTBPS is sobering, one that every South African is acutely aware of. The lack of jobs. Rising costs. Families struggling to make ends meet. With every passing day, South Africans are despondent. 9 million South Africans are without jobs and an estimated 53% of our people live below the poverty line. The barriers faced by people trying to propel themselves out of poverty is an ongoing story in our country. Over 17 million South Africans depend on social grants. That’s over 30% of our population.
South Africa is truly entering a watershed moment. We have a choice. We can be the generation that helped usher in a course-correction for our country that will leave our nation in a better state for our children. Or, we can be the generation that leaves our children with a growing debt burden and a country that is worse off than how we found it. This is unacceptable. We, at Business Leadership South Africa (BLSA), hope that Gigaba believes it is unacceptable too.
We need action. We hope Mr. Gigaba will lay out a recovery plan, one that separates the politics from economics, and does what is best for our country. We can no longer stay silent as the government seeks to mortgage the future of millions of South African families as a means of safeguarding and bailing out poorly run state-owned enterprises (SOEs).
Business and consumer confidence is at an all-time low and economic growth is forecast to be under 1%. Even more concerning is the growing debt that our economy has accumulated.
Debt to GDP is above 50% and if we add the government guarantees to SOEs, estimated at R478bn, gross government debt stands at 62% of GDP. This is a shocking deterioration of our fiscal state. In comparison, our 2008 debt-to-GDP ratio was 28%. Of course, South Africans do not need numbers and statistics to tell them that something is badly wrong with South Africa.
And right now, it is up to Gigaba to ease the concerns and anxiety facing many South Africans. We need strong leadership in the Treasury and firm action. We also need a firm sense that the budget is drafted in the Treasury, where capacity resides and not elsewhere, such as the presidency, as new claims on the state capture of the Treasury suggest.
The Public Investment Corporation (PIC) is not for sale and more importantly it is not a vehicle to bailout poorly run SOEs like South African Airways. No more bailouts. No more turnaround plans that only turn our country upside down, and produce no results besides another turnaround plan months later.
At BLSA, we expect a laser focus on fiscal discipline and consolidation. Any hints of aggressive expansionary fiscal policy on the recurrent spending side, when we know that tax revenues are down even in the context of South Africans paying higher taxes, will be unacceptable. There are legitimate fears that the MTBPS may trigger further credit ratings downgrades if fiscal slippage cannot be reined in. We cannot have a medium-term budget plan that is heavy on state-led projects without much-needed public procurement oversight that many will see as just another state capture mechanism. Like many South Africans, we will be scrutinizing Gigaba’s tone and language down to each word and comma.
Will Gigaba show a sense of urgency and determination to truly make a difference in the Treasury? Will he have fresh new ideas to balance the need for fiscal consolidation with stimulating growth that ultimately works towards improving the lives of every South African?
Gigaba faces a monumental challenge. Business stands ready and is willing to work with the government to ensure we put the country on the right path. For this to happen, Gigaba must reassure us that we can trust the Treasury and that it is not a victim of state capture. We cannot afford further politicisation of economic policymaking in South Africa.
Your move, Mr. Gigaba. Give South Africans HOPE.
Published in City Press (22 October 2017)