The 2021 Medium Term Budget Policy Statement

As the minister noted, South Africa’s better than expected fiscal position is mainly a result of a tax windfall from the spike in commodity prices, which is not sustainable over the long-term. The improvement in the country’s finances is not because vital economic reforms, necessary for sustainable inclusive growth and social support, have been implemented by government with the necessary urgency. As has been repeatedly pointed out, government must speedily provide clarity and assurances on safety and security; reduce red-tape and onerous regulations for entrepreneurs and small enterprises; provide greater policy certainty; and urgently implement the President’s Economic Reconstruction and Recovery Plan. Much of these can be done, to great effect, at little cost to the treasury.

Banks have worked with the South African Reserve Bank and the National Treasury to help businesses recover from the Covid-19 pandemic. As the minister indicated, government will make further announcements, in this regard. However, it must be noted that in the normal course of their business, banks already provide financial relief to customers in good standing who have been affected by the Covid-19 pandemic and recent unrest.

Faster inclusive economic growth will also enable government to maintain and extend very necessary social security to the most vulnerable South Africans, which in a country with unsustainable unemployment, underpins the stability we are all dependent on. However, ever increasing social support without inclusive growth becomes unaffordable and hinders social and economic development and job creation. We hope that between now and the February 2022 budget, the cabinet is able to develop evidence-based social security policies that are affordable and sustainable over the long-term.

The precarious state of government finances is a cause of concern for banks, which hold substantial government debt. Fiscal crises lead to banking crises, which could put the savings and investments of South African workers, professionals and businesses at risk. It is a relief that there is no additional funding for state- owned enterprises in the MTBPS. However, given the perilous condition of the finances and operations of many state enterprises, they must be speedily restructured to reduce the risk of creditors having to call on government guarantees. Government must move with urgency to identify and dispose of those state companies that burden the fiscus but are of no strategic economic value to the country.

The MTBPS provides a welcome reaffirmation of the government’s commitment to investing in vital economic infrastructure, like secure and stable power and water supplies, telecommunications and digital infrastructure and efficient logistical networks, among others. However, past disappointments in this regard have resulted in government facing a crisis of credibility and it is only by ensuring the urgent and effective implementation of the economic development plans set out in the budget statement will investor, business and consumer confidence in the country be restored.

We note the minister’s commitment that the “MTBPS charts a course that demonstrates government’s unflinching commitment to fiscal sustainability, enabling long-term growth by narrowing the budget deficit and stabilising debt, being clear and unambiguous on the trade-offs we are willing to make …and.. the fast implementation of structural reforms to unlock greater private sector investment, economic growth and job creation.

We urge the President and his cabinet colleagues to give the finance minister their unified support as he works to restore the fiscal stability and credibility of the country before South Africa has to make even harder economic decisions in the February 2022 budget.