Budget 2021: A difficult recipe for masterchef-cum-finance minister Tito Mboweni
Prof Bonke Dumisa
Minister of Finance Tito Mboweni is undoubtedly the most educationally appropriately qualified post-apartheid Finance Minister, in terms of his university qualifications in Economics at a post-graduate Masters level.
He is also known in social media circles for trying his hand at cooking, where all the well-known cooking experts have given him a failing grade.
The reason why I start with Mboweni’s university post-graduate economics qualifications in the same breath as his cooking experiments, is because this year’s 2021 National Budget, is going to be his most challenging one, and the most difficult national budget we have ever had in the post-apartheid era.
This is because of the most intractable economic challenges and the negative economic multiplier effects of the Covid-19 pandemic.
When the minister of Finance presented his last National Budget 2020, on February 26 last year, there was nothing said and or budgeted for the pandemic, because we did not have any Covid-19 positive cases in South Africa. In fact, most South Africans did not know anything about Covid19 at that time. Only those who follow global news knew there was this serious problem in China, other Far East countries, and some European countries.
Within two weeks of last year’s National Budget speech, the first Covid19
positive cases were reported in South Africa, on March 5. It was against that background that President Matamela Cyril Ramaphosa announced the declaration of the National State of Disaster, under the National Disaster Management Act, on Sunday, March 15.
The most negative effect of that announcement was the introduction of physical distancing, that marked the start of our major economic nightmares. Businesses and churches were some of the first to suffer dearly because of the distancing measures.
On Sunday, March 22 last year Ramaphosa made yet another major announcement that South Africa was to be placed under strict national lockdown with effect from March 27.
The net effect of this was that most critical businesses were effectively closed under those measures. The jobs bloodbath and economic downturn started, and still continues to date.
On March 27, the date when the national lockdown came into effect, Moody’s International Credit Rating Agency formally announced that it had downgraded the South African sovereign debt rating to subinvestment grade, otherwise popularly known as, junk status.
This meant that all three major international credit rating agencies had by now downgraded the South African sovereign debt to junk status, which automatically triggered many top global investors into no longer investing in South Africa or lending money to South Africa and/or its state-owned enterprises (SOEs), because of the prudential position of certain countries and multinationals, that they must not invest in any country that has been downgraded to junk status by all three top international credit rating agencies.
The announcement of the National Disaster Management Act measures and the lockdown measures meant South Africa suffered a significant drop in targeted revenues for the national fiscus, as the closure of businesses and massive jobs losses were to result in less tax collected by the South African Revenue Services.
Unfortunately, these lower revenues for the national fiscus occurred at a time when the government had to significantly increase its service delivery expenditures, in order to contain the adverse negative economic multiplier effects of the national lockdown.
This forced Mboweni to have a follow up Special Review of the National Budget 2020, where he tried to accommodate the intractable economic and Covid-19 pandemic challenges.
Unfortunately, many of the good budgetary considerations dealt with at this stage were overshadowed by the revelations of major corruption associated with the provision of protective personal equipment (PPE).
The combined negative economic multiplier effects of all these factors resulted in the significant weakening of the rand. This resulted in significant imported inflation, which was, however, effectively neutralised by the lowering domestic inflation due to significant reduction of South African economic activity within the same period of time.
It is against this background that the South African government came up with a 38-page South African Economic Reconstruction and Recovery Plan, that tries to be a panacea for all the economic challenges we face.
The document identified the following as the priority interventions to be made:
* Aggressive infrastructure investment
* Employment-oriented strategic localisation, reindustrialisation and export promotion
* Energy security
* Support for tourism recovery and growth
* Gender equality and economic inclusion of women and youth
* Green economy interventions
* Mass public employment interventions
* Strengthening food security; and Macro-economic interventions.
Looking at all these priority interventions, it clearly creates a complicated matrix for Mboweni on how he can mix all these ingredients in cooking an all-inclusive National Budget 2021, amid a difficult environment where the South African economy is under close scrutiny by international credit rating agencies, who are monitoring if the South African Budget 2021 will not necessarily worsen our already precarious debt-to-GDP ratio.
What makes Mboweni’s task even more difficult, as he cooks this budget, is the fact that many South Africans, especially politicians, are deliberately in denial that we have a serious financial problem in South Africa.
Many of these people in denial still want to demand that the government must increase its expenditures and freebies in various departmental votes, without stating where the money for such expenditures will come from.
The mere fact that public servants went to the courts to seek to enforce salary increases from the government’s empty coffers, tells you that Mboweni’s pragmatic budget will not have many people clapping for it on Wednesday.
* Prof Dumisa is an independent economic analyst.
** The views expressed here are not necessarily those of IOL.