By Prof Bonke Dumisa
Very few people will envy Finance Minister Enoch Godongwana on February 23, as he presents his National Budget Speech under very trying times.
The national budget day will be marking Day 710 since South Africa was placed under the National State of Disaster measures under the Disaster Management Act on March 15 2020, and Day 699 since South Africa was placed under the National Lockdown measures under the Disaster Management Act on March 27 2020.
This budget speech will thus be made after close to two full years of South Africa being ravaged by the Covid-19 pandemic’s highly restrictive business conditions.
Minister Godongwana will be addressing South Africans who will be expecting the government to immediately allocate trillions of rand to many cost centres aimed at alleviating the plight of at least over 30 million people who feel they are entitled to different types of government grants. Add to this that many human rights organisations will rush to the courts of the land to demand that even non-South Africans should be equally entitled to whatever the government is allocating.
He will be addressing many people who know exactly what they want to get for free without even caring to indicate where the money to fund those expenditures will come from.
Let’s rewind a bit to put into perspective the circumstances under which this budget will be presented.
In 2018, the South African economy showed serious signs of cracking, as the country had many quarters of negative economic growth resulting in the country being declared to be officially in A RECESSION. Two major international credit rating agencies, Standard &Poor’s and Fitch, immediately downgraded South Africa to the sub-investment grade, popularly referred to as JUNK STATUS. That increased the costs of borrowing for the South African government.
These two international credit rating agencies cited, inter alia, the increasing Debt-to-GDP ratios in South Africa. Moody’s, the other major credit rating agency which had not downgraded South Africa to junk status, also highlighted the issue of runaway government expenditures as being problematic.
The economic situation deteriorated further in 2019, but Moody’s still retained South Africa in an investment grade.
When the news of Covid-19 in China became a global matter, the South African economic situation worsened. This got worse when the first Covid-19 cases were reported in South Africa at the beginning of March 2020.
It was, therefore, not surprising when Moody’s finally also downgraded South Africa to junk status on Friday, March 27, 2020, which was the first day of the National Lockdown in South Africa.
The South African economy has thus been under serious downwards pressures for at least five years.
The Covid-19 pandemic economic restrictions have severely destroyed the economy for at least two full years, with at least two million people losing their jobs because of this. Even with the people who did not lose their jobs, many of them had pay cuts.
Most of those who retained their jobs did not get any salary increases, and those who did get salary increases, got very low salary increases, not above 4-5 percent, at most.
Under these circumstances, it is very clear that Finance Minister Enoch Godongwana will have very few options of where to increase budget allocations and/or where to reduce budget allocations. He will thus be in a catch-22 situation where he is doomed if does and doomed if he doesn’t.
The question that remains now is: Where will the South African Government get the finances to adequately fund the necessary economic recovery plan?
Your guess is as good as mine.
It is important that the government allocates adequate funds to finance the necessary strategic infrastructural development projects, primarily because the infrastructural decay we witness all over South Africa is actually acting as an investment deterrent.
Second, some strategic infrastructural projects like the De Beers Pass are necessary to resolve the never-ending costly bottlenecks on the N3 economic lifeblood route between Durban and Gauteng.
The government needs to allocate adequate funds to finance all the prosecutorial processes of all the corruption cases that flow from the PPE cases and other Covid-19 related cases. Add to that, all the cases that will need to be dealt with flowing from the Zondo Commission.
The government is morally bound to extend and even slightly increase the Social Relief of Distress grant of R350 in order to address the plight of the poor and the unemployed. We must thus definitely expect the government to allocate a lot of money towards this.
More money will also need to be allocated to education specifically to overhaul the education system we currently have that does not meet the economic needs of the country.
Last, the government must never commit to any long-term expenditure unless certain it will be sustainable.
*Dumisa is an independent economic analyst
** The views expressed here are not necessarily those of IOL or of title sites.