Mboweni forced to put brakes on MTBPS
JOHANNESBURG - Finance Minister Tito Mboweni decided to postpone the tabling of his mini-Budget by a week over an intense balancing act in government between spending and expenditure.
People in the know yesterday said that Mboweni’s request for a postponement came as government’s top economic guru failed to agree on the balancing act.
Mboweni yesterday said he had to adjust the approach and consultation of the budgetary process considering the unusual circumstances brought about by the Covid-19 pandemic.
The sticking point came from concerns aired on Tuesday that curbing spending could stifle growth.
On Tuesday, the Presidential Advisory Council apparently gave the green light to Mboweni’s plan to cut the public sector wage bill by R160billion over the next three years.
FXTM’s Lukman Otunuga said the unexpected delay of the Medium-Term Budget Policy Statement (MTBPS) highlighted the severity of the situation and confirmed the critical importance of the Budget ticking all the right boxes.
“No stones must be left unturned in the MTBPS, especially when factoring how cautious investors and credit agencies will be heavily scrutinising the Budget for insight into how the government plans to tame spending and growing public debt,” Otunuga said. “Whatever the outcome of the MTBPS, it will certainly have a lasting impact on South Africa’s economy.”
Business for SA (B4SA) said it had identified that budgetary requirements over the next three years had dramatically increased to about R3.4trillion for both the public and private sector.
B4SA steering committee chairperson Mark Kingston said the size of the fiscal deficit highlighted the need for creative and consistent approaches to the allocation of scarce capital.
“It is apparent that conventional sources of capital and, in particular, domestic savings and investments, will be inadequate to fund this deficit,” Kingston said. “We will have to work tirelessly and in partnership to attract capital from abroad and from new sources.”
The country expected Mboweni to table his MTBPS on October 21.
However, the date had to be postponed by a week, allegedly to give President Cyril Ramaphosa room to unveil his economic recovery plan today.
The economy is still nursing deep wounds inflicted by Covid-19 and remains stuck in its longest recession in 28 years. The gross national debt is projected to be close to R4trillion, or 81.8percent of gross domestic product (GDP), by the end of this fiscal year, while the consolidated Budget deficit was forecast to be R761.7billion, or 15.7percent of GDP in 2020/21.
Investec chief economist Annabel Bishop said there had been more than a decade of consultation about how to implement the economic recovery, but no actual action.
Bishop said there was a reality of having to meet the alignment between the Ramaphosa’s economic recovery plan and the Budget.
She said it was likely that Budget allocations and debt projections were the sticking point, both for negotiations pre-MTBPS with stakeholders, and also the consideration of the likely impact on markets.
“There is slow, but growing realisation widely in government of the imperative nature of cutting expenditure to meet the requirements for fiscal consolidation which the president has outlined and prevents fiscal collapse and default,” she said.
Bishop said fiscal consolidation would include cuts to public servants’ remuneration, as the government debt-to-GDP projections could rise more realistically to 100percent before peaking.
“There is recognition that substantial cuts in public servants’ remuneration would have a positive rand and bond market impact,” Bishop said.