Good, but will it be enough to fend off a downgrade?
JOHANNESBURG – The Budget confirms the extent to which the South African economy still finds itself in a bad space, requiring a strong emphasis on measures to boost job-rich growth.
The 2020 Budget speech given to Parliament by Finance Minister Tito Mboweni was seized with a greater sense of urgency about the critical economic and fiscal challenges faced by South Africa and offered a difficult balancing act for addressing them in what have become very stressful economic circumstances.
It also highlighted the need for collaborative leadership among the government, business and labour.
Given the consequent pressure on state revenues, the substantial Budget commitment to reduce the public sector wage bill is a very important economic and political step towards creating a better balance between government current spending and its investment outlays.
The emphasis was on fiscal consolidation as the way forward, rather than increasing the overall tax burden. It is welcome that there have been no personal or corporate tax increases, and in fact some tax reductions.
Both on the revenue and spending sides of the Budget it is again evident that further pro-growth reforms must be urgently implemented to put the economy on a higher growth path and to relieve the fiscal strain.
The economy must now break out of its “low growth trap” of about 1 percent in the foreseeable future.
The impact of the various proposed Budget remedies will continue to depend heavily on successful and tangible implementation of the planned policy steps, including the turnaround in key dysfunctional state-owned enterprises such as Eskom.
Lack of security in energy supply is recognised as a major constraint on growth.
The downside risk in the Budget nonetheless remains the growth in public debt and the need for continued fiscal discipline, given the deteriorating debt arithmetic strongly reflected in the Budget numbers.
This trend continues to present policy makers with difficult but unavoidable choices.
What clearly again shines through the fiscal gloom of recent years is the need for a dramatic and sustainable rise in our flagging growth rate by boosting investor confidence and turning the economy around.
It remains an open question as to whether enough has been done to fend off a Moody’s investment downgrade.
Raymond Parsons is a professor at the North-West University School of Business.