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Walking a tightrope in Budget to balance priorities

Finance Enoch Godongwana

Finance Enoch Godongwana

Published Feb 21, 2022

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CAPE TOWN - They are like London buses. You wait for hours for one to come, and then suddenly three of them come at the same time.

In the South African context, more a question of months, I am of course referring to the surfeit of reports emanating from the International Monetary Fund (IMF) and World Bank Group on the state of South Africa’s economy, public debt and financial sector.

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First it was the World Bank’s $750 million (R11.3 billion) development policy loan on January 21, requested by the National Treasury to support its efforts “to accelerate the government’s response aimed at protecting the poor and vulnerable from the adverse socio-economic impacts of the pandemic and supporting a resilient and sustainable economic recovery”.

On the same day, it was a report under the IMF’s Financial Sector Action Programme, conducted with the World Bank every five years, that assessed the stability of the South African financial system and the presence of any systemic risks. Lastly, it was the final Report of the IMF Article IV Consultation on South Africa in February.

To add to the intrigue of coincidences, they come just a few days after President Cyril Ramaphosa delivered his State of the Nation Address (Sona) on February 10, and a fortnight before Minister of Finance Enoch Godongwana tables his 2022 National Budget on February 23.

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Never before has a South African finance minister had so many pointers in the build-up to his Budget Statement, let alone from the arch gatekeeper of the global economy and financial system – the IMF and World Bank Group.

“We are running a huge deficit of R360bn in one year,” conceded Dondo Mogajane, director-general of the National Treasury in a recent interview with BizNews Radio. “We need money. We need the economy to function. We need tax revenues to come through.

Unfortunately, the economy is not performing full steam. As long as our economy is not firing on all cylinders, we will need to borrow.”

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It’s no secret that the government’s record of spending taxpayers’ money is very poor. “I’m not only concerned about the expenditure of the $750m. I’m concerned about the R1.4 trillion that we get every year. The Auditor-General’s reports indicate irregular expenditure increases all the time,” lamented Mogajane.

In his Medium-Term Budget Policy Statement in November, Godongwana threw down the gauntlet, aimed more at his cadres and the factions within the governing ANC, SACP, and Cosatu coalition. To what extent his mantra of “A resilient South Africa making hard choices in difficult times” is reflected in his Budget for a nation saddled with a punishing cost of living and unemployment crisis or merely feigns an exercise in political posturing will be revealed when he rises in the unfamiliar setting of the Cape Town City Hall to table his 2022 Budget.

Ramaphosa in his reply to the Sona debate in the City Hall gave little away about the Budget, instead striking the familiar tone of defending his government’s agenda for change and renewal; and blaming the country’s economic woes after 14 years of delivery success under Mandela and Mbeki on the 2008 global financial crisis; falling commodity prices; severe energy constraints; inefficient network industries and by the impact of the Zuma state capture on so many vital public institutions.

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It is a truism, as Ramaphosa maintains, that South Africa has an economy and a society that is still largely defined by its colonial and apartheid past. The legacy of dispossession and exploitation, and the gross and rising inequality between South Africans still persists.

The changing metric is that divide is not only between blacks and whites, but today also between the post-apartheid black elites and middle classes on the one hand, and the majority of their countrymen on the other. Self-enrichment, entitlement, corruption, cronyism, profiteering, wanton cadre deployment and policy friction are just as much to blame.

It was left to Deputy Minister of Finance Dr David Masondo to articulate some of the government’s reform and Budget priorities in the Sona debate. I have some sympathy for his contention that “inclusive economic growth can only be realised if both growth and redistribution take place simultaneously”. Never mind trickle-down economics.

The reality is that redistribution too costs money, which demands more meaningful and targeted reallocation of resources that “places money in the hands of the poor, which generates demand for mass goods and services, thus setting market conditions for economic growth and development”.

The poor and vulnerable should always have the certainty of a state safety net. That is non-negotiable. But to avoid the slippery road to a wider dependency culture, Team Godongwana have to come up with a sustainable growth strategy that creates housing, wellness, jobs, productivity, and thus higher revenues, and “is not dependent on large-scale public investment and consumption to fully offset its fiscal consolidation strategy”.

The economy needs to grow a minimum of 5% per annum over the next five years for the country to start affording the remedial measures needed to ensure compatriots are not left behind. The projected IMF growth rate for South Africa in 2022 is 1.9% and 1.4% over the medium-term.

Not that there is a meeting of minds over South Africa’s social and economic prospects over the medium-term between the IMF/World Bank and the Treasury. The IMF acknowledges that South Africa has faced formidable challenges due to the pandemic. But entrenched risks include the slow progress in the implementation of structural reforms, rising debt burden and costly debt servicing, and the operational and debt problems of state-owned entities such as Eskom.

The country also needs to address governance and corruption vulnerabilities in order to foster private investment to improve productivity and competitiveness.

The Treasury in response agrees to disagree and remains “more optimistic than the IMF on the medium-term growth and fiscal outlook, expecting growth to be driven by a gradual recovery in confidence and private investment”, and claiming that the IMF’s concerns are aligned with the government’s response programme to stimulate economic growth.

Such are the fine margins in South Africa’s politics and economics of hope and despair!

Parker is a writer and economist based in London

Cape Times

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