The Medium-Term Budget Policy Statement (MTBPS) provided further evidence of the need for urgent economic reforms to reduce state expenditure and accelerate inclusive economic growth.
South Africa has a depleted fiscus, debilitating unemployment, poverty and inequality and dangerous levels of social instability. Government has been disturbingly quiet about the announcement that unemployment in the country has reached 29.1%.
Unfortunately, while the Minister of Finance has identified that South Africa “spends more than it earns”; that “things need to be done differently”; and “there is no time left to act”; there is little that indicates the rest of government understands the seriousness of the economic crisis. BUSA recognises that given the state of the country’s economy and treasury, the minister’s options were constrained.
While the minister recognises that government cannot continue to throw money at Eskom and other state-owned enterprises, it still has not presented a clear plan to resolve the financial crisis at the utility. We are deeply concerned by statements by members of the Eskom Board in Parliament that they are under political pressure to avoid making difficult business decisions.
The National Treasury concedes that economic growth is expected to be a mere 0.5% in 2019. We agree that this is simply not good enough, considering the needs of the country. This paltry growth means there is a revenue shortfall of R53 billion; a consolidated budget deficit of 5.9% and a debt to GDP ratio of 70% by 2022/23. The budget deficit, increased debt and persistently low growth does not inspire confidence that government has done enough to deter further credit ratings downgrades.
The plans to reduce expenditure by R150 billion over the next three years – and achieve a main budget primary balance by 2022/23 – will require determined political leadership by the President and the support of his cabinet. To date, efforts to reduce state expenditure and the public service wage bill, has not produced the desired results.
Increased funding for the South African Revenue Service (SARS) and the National Prosecuting Authority (NPA) gives hope that those responsible for the poor state of the fiscus will be prosecuted, convicted and their ill-gotten gains recovered. Good governance and the rule of law is essential to the recovery of the economy.
The reality is that South Africa needs inclusive economic growth to create jobs, reduce poverty and inequality and cut its debt. There was little in the minister’s speech that shows how government will substantively implement the National Treasury document: “Economic transformation, inclusive growth and competitiveness: Towards an Economic Strategy for South Africa”.
An economy in crisis – like South Africa – cannot be fixed by making small incremental reforms. The Treasury economic strategy document outlines a significant number of growth-enhancing initiatives that meaningfully boost business and investor confidence and stimulate the economy, at minimal cost.
The proposed strategy is not a silver bullet for South Africa’s economic problems. However, decisive implementation of the proposals introduced by the Minister could do much to boost business and consumer confidence and lay the foundation for accelerated economic growth in the coming years. The president and his Cabinet must take the lead and show unequivocal public support and political will in ensuring the quick and effective implementation of key proposals in the economic strategy document and the MTBPS. Hard decisions are required to clearly demonstrate implementation. We look forward to seeing this in next year’s Budget.