PARLIAMENT - Finance Minster Tito Mboweni on Wednesday laid bare the grim metrics of the country's finances, with growth expectations slashed to 0.5 percent for the year, in a medium-term budget policy statement tabled two days before Moody's will indicate if it is ready to maintain South Africa's last investment-grade credit rating.
The minister put the consolidated budget deficit at 5.9 percent of GDP for the year and told members of Parliament (MPs): "Clearly, we need to do things differently. This is a serious position to be in.... there is no status quo option!"
Crucially, he warned that carrying on in the current mode would see the debt to gross domestic product (GDP) ratio cross another danger line of 70 percent by 2022/23.
Had planned savings of R250 billion materialised, it would have contained this to a relatively "sweet spot" of 64 percent. The only way forward now was belt-tightening, Mboweni said.
"The consequence of not acting now would be gravely negative for South Africa. Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap."
He cautioned that this would worsen unemployment, which has reached an 11-year high of 29.1 percent.
The minister at a media briefing just before his speech to the National Assembly called on Reserve Bank Governor Lesetja Kganyago to explain the approach to the Moody's review and the risk of a downgrade.
Kganyago said the ratings agency, the last to keep South Africa at investment grade, was not looking for window dressing but would rather make it's decision solely on whether it agreed with the government's policy decisions.
"All the ratings agency does is to asses whether, based on policy direction, you are willing to repay the debt," Kganyago said.
Should Moody's downgrade the country on Friday, the consequence will be felt through there will be an outflow of funds from the South African bond markets, the investment will become speculative in nature, debt costs will rise and every household will feel pain as interest rates and inflation rises, he said.
Kganyago is on record as saying he believed a downgrade may already be priced into the markets, and therefore if Moody's held off on a downgrade on Friday, the country could see a positive upswing.
Mboweni caused a small ripple when he said he believed government needed to review the usefulness of having a medium-term budget policy statement, a measure introduced in 1997.
But he acknowledged that it gave time to reflect, and a few months to act before he tabled the national budget in February.
The minister said it was now critical to address fiscal leakage, which he said were "all over the place".
In response, national treasury has identified spending reductions of R21 billion in 2020/21 and R29 billion in the following year, mostly in terms of services and goods and transfers.
Trimming spending would include cell phone bill allowances, cheaper plane tickets for public office bearers -- who will be restricted to economy class when they travel domestically -- and cheaper official cars, with Mboweni saying he was mulling a top limit of R800,000 for ministerial vehicles. To illustrate the kind of money thrown about in the public service, he said he had commissioned an audit of the annual cost of cell phones and it came to R5 billion, adding that state employees could finance their own phones and if they saw fit, claim for work calls.
But the minister acknowledged that as ever his biggest headache lay in the public service wage bill -- which consumers R46 out of every R100 collected by the revenue service -- and the endless strain placed on the country's finances by state-owned enterprises.
Mboweni hinted that these were among the grave conversations that his department needed to have before the February budget, cautioning that there should be "no grandstanding" as the state set about trimming its costs.
In another move that rang out like a dare to trade unions, the minister said he and treasury director-general Dondo Mogajane would run through the list of state-owned enterprises and decide which to keep and which to privatise.
"Dondo and myself agree that we are going to sell some but we will tell you which ones," he said, adding that they were weighing carefully which should remain within the department of public enterprises and which should go into private hands.
"It is not ideology, just basic portfolio management."
The official opposition Democratic Alliance (DA) said it appreciated Mboweni's frank assessment that the country was in more financial trouble than suspected. But DA finance spokesman Geordin Hill Lewis said he had failed to present a plan to rein in the national debt.
"The minister’s number one priority in this speech was to present a credible plan to control national debt and rein in the deficit. The fact is that he did not do this. For all the tough talk, the minister’s bark was worse than his bite. The spending cuts he did announce - roughly R50 billion over the next two years - will not be nearly enough to slow down the ballooning of national debt, and will not be enough to restore credibility with ratings agencies."