Waiting for final economic recovery plan
The MTBPS plays a critical role in the overall budget process, as it sets out the policy framework for the upcoming Budget and provides the country an update on the National Treasury’s assessment of the current economic climate and outlook.
As a statement of government policy, the MTBPS will assess and explain the trade-offs and choices that must be made to ensure a stable, balanced and sustainable economic growth.
Top among Mboweni’s priorities would be presenting his final economic recovery plan and announce further steps to bail out financially distressed state-owned enterprises, especially Eskom.
Eskom’s spiralling debt has been cited as the biggest threat to economic stability and credit rating status, thus the government has proposed to unbundle the power utility into three units to immediately halt its financial and operational collapse.
Mboweni’s economic strategy, which proposes an independent transmission company and private equity partners for debt-ridden national carrier SAA, has found favour in both the Cabinet and ANC NEC, and has the backing of President Cyril Ramaphosa.
The country’s fiscal metrics have deteriorated on weak growth, revenue shortfalls and increased spending pressures.
The weaker than expected gross domestic product (GDP) growth outcome forecast below 1 percent, the accompanying revenue under performance and increased spending pressures, are projected to yield a consolidated budget deficit of 6.1percent of GDP, instead of the 4.5percent deficit forecast in the 2019 Budget.
The SA Revenue Service recently said it expects a net collection deficit of R14.5billion compared to the 2018/19 target, or a R57.3bn deficit compared to the 2018/19 Budget target.
Debt levels are seen to tip 60percent of GDP versus the 56.2percent National Treasury forecast, leaving little room for the maverick finance minister to manoeuvre.
This is in light of the weakest business confidence in 20 years and trade surplus forecast to have narrowed to R2bn from R6.8bn in August on lower exports.
Thus, key to Mboweni’s message on Wednesday will be concrete plans to curb expenditure, particularly given the weak nominal GDP growth as well as the increased dependence of state-owned enterprises on the fiscus.
Business and economists all agree that an urgent action plan is required to stimulate economic growth.
Managing director of Business Partners Limited, Ben Bierman, said the government had the opportunity to restore confidence in its ability to stimulate economic growth.
“A decisive plan of action to establish a more conducive business environment and concerted execution is, therefore, critical to improve confidence, stimulate investment and drive accelerated economic growth,” Bierman said.
“Many business owners will be eager to see what the government plans to do and action to shape the environment to be more conducive to business growth.”
“In addition to this, we’ve got to start looking to create a more labour-friendly environment for SMEs, as there are simply too many examples of labour laws that filter down from big business negotiating with bargaining councils which then negatively impact SMEs and their sustainability.”
Moody’s Investor Services would be watching Mboweni’s budget with a keen eye as it has recommended economic reforms for the country to maintain its debt at investment grade on the November 1 credit rating review.
Investec economist Lara Hodes Hodes said that business and investor confidence would improve as a result, driving a private investment led increase in economic growth.
“Fiscal space for further policy stimulus has been eroded. As such, a significant and sustainable lift in economic growth is largely reliant on the effective execution of structural reforms and the enhancement of policy certainty,” she said.