DOES THIS YEAR’S BUDGET MEET EXPECTATION? DISCOVER THE BANKING ASSOCIATION’S THOUGHTS.

Publication Date: 20/02/2019

The Banking Association South Africa assesses the budget on three priorities which are important to the health of the industry and its ability to facilitate inclusive economic growth and social development in South Africa. They are:

  • Maintaining and strengthening the country’s credit rating, specifically with Moody’s, the last agency to rate South Africa investment grade. Without this, the cost of borrowing for the country, financial institutions, business and ultimately consumers, will become unsustainable.
  • Tackling the country’s fiscal crisis, by reducing and making better use of expenditure, strengthening revenue collection and dealing with the debt and operational problems at state-owned enterprises, in the short-term.
  • Fast-tracking those economic and policy reforms that can provide a quick boost to inclusive growth but have not been enacted because of inefficiencies and a lack of political will. We acknowledge that many of these are beyond the remit of the Minister of Finance and that he needs the firm support of the president and his cabinet colleagues.

With the 2019 budget the Minister of Finance, Tito Mboweni, continues the slow work of rebuilding confidence in the economy and avoiding a further downgrade. The budget does what needs to done.
Economic growth
The treasury’s growth projections for 2019 – a mere 1.5 percent – is a cause for alarm and must persuade government to do much more to stimulate the economy than is set out in the budget speech. There is much more that can be done to reduce red-tape and introduce a better regulatory and policy environment for business, job creation and inclusive economic growth. These require political will, not greater expenditure. The reform of the visa regime and licencing of spectrum are among other previously announced initiatives by government, that have not been treated with the urgency they deserve.

We welcome the recognition by the minister that the private sector is the key engine for economic growth and that policy uncertainty has undermined confidence and constrained private sector investment. Financial institutions have indicated their willingness to participate in the infrastructure fund, but greater clarity is needed about how it will operate. The private sector has long indicated that it would be a willing partner in the design, building and operation of key infrastructure assets.
Revenue and expenditure
The concrete timelines for the appointment of the SARS Commissioner and the restructuring of revenue service will very likely result in a much needed boost in expenditure in the coming year and will help tackle the country’s fiscal crisis.

However, South Africa will not be able to meet the growing demands on its social security and development infrastructure, and resolve its fiscal challenges, without significantly faster economic growth that can generate increased revenue.

The minister has made it clear that he is working to ensure that state-owned enterprises no longer have easy, unaccountable access to the national treasury. The appointment of a Chief Reorganisation Officer at Eskom and tighter control over the issuing and use of state guarantees, is a sign that a necessary discipline is being applied to the state-owned enterprises that threaten the fiscal stability of South Africa. His insistence that government will not take on Eskom debt is a welcome attempt to reduce policy uncertainty and risk to the fiscus. However, Eskom will remain a danger to the economy until it is restructured into a sustainable utility that is fit for purpose in the South African economy.

The reduction of the public sector wage bill is necessary, but R27 billion over three years is not enough. While the minister did enough to keep the debt to GDP ratio under an unsatisfactory 60%, there needs to be further and faster reductions to the wage bill to close the deficit. The process to reduce the public service wage bill must also preserve essential skills needed in the state bureaucracy.

The minister’s stated commitment to serving South Africa is welcome after the long years when our country and its people came after narrow political interests. In an election year, we hope all the country’s leadership will prioritise the needs of the country in the months ahead.