Johannesburg - The next president of the ANC and the country - after December and the 2019 general elections - is facing a tough political and economic balancing act.
Wednesday’s mid-term budget speech, which Finance Minister Malusi Gigaba described as a candid account of the tough economic times the country is facing, lifted the lid on the reality that the economy will continue to be hobbled, reaching 1.9% by 2020 - far below the 5.4% required to achieve the goals of the National Development Plan, the blueprint to achieve the country’s social compact.
The sluggish economy is also retarding the government’s efforts to deal with pressing challenges such as creating desperately needed jobs, while unemployment was set to escalate.
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On Wednesday, political analysts and economic experts warned of tough days ahead.
With the crucial national poll approaching in 2019, the speech also revealed that sluggish growth was already causing a dip in tax revenue, which is desperately needed for social spending on infrastructure projects such as schools and clinics.
The retarded economic growth and dwindling revenue have also resulted in a revenue shortfall of R50.8billion in the current financial year - the biggest shortfall since the 2009 financial crisis.
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The trend of the budget shortfall was set to continue, with an expected shortfall of R69.3bn in the 2018/19 financial year, and an even bigger shortfall at the end of the medium-term framework of R89.4bn in 2019/20.
Gigaba on Wednesday trumpeted tight fiscal discipline, but warned that state-owned entities posed a financial risk to the economy after he was forced to bail some out again.
He told Parliament in his Medium-Term Budget Policy Statement that the government had been forced to breach its expenditure ceiling after the bailout of SAA by R10bn and the SA Post Office by R3.7bn - a deeply troubling situation that could lead to further credit downgrades if not dealt with.
The minister said they would be meeting with the three global credit ratings agencies - Standard & Poor’s, Fitch and Moody’s - for their reaction to the speech.
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Two of the three agencies - Moody’s and Fitch - have already downgraded the country’s credit rating to junk status, derailing efforts to attract direct foreign investment, among others.
This was just after one of President Jacob Zuma’s cabinet reshuffles - in March - resulted in former finance minister Pravin Gordhan being sacked.
Policy uncertainty, mismanagement of SOEs, rising government debt and political uncertainty were at the heart of the country’s economic woes. And it was not clear whether this would improve in the run-up to the ANC’s elective conference in December.
Mismanagement at the SOEs, which is at the centre of state capture allegations, remained a grave concern.
Gigaba insisted on cost-cutting measures such as cutting back on travel perks, consultants, accommodation and catering, among others - saying this had saved the country R2bn.
He said tough decisions had to be made to bring the country back from its economic slide.
The government was already dealing with the economic weaknesses by strengthening the running of the SOEs, with the appointment of a new SAA board. Eskom and Transnet were also going to have new boards, he added.
Gigaba said that despite the difficulties, the government would not cut spending on social services, with education and healthcare continuing to get the lion’s share of the Budget.
“The period ahead is not going to be an easy one. Our resolve is to remain on course and not to deviate on the fiscal consolidation agenda we embarked on a few years ago,” he said.
The worse than expected revenue-collection shortfall would exacerbate the ANC’s already dim chances at the 2019 polls, as the government would be hampered in spending, political analyst Professor Mcebisi Ndletyana said.
He contended that a cut in revenue col- lection would result in limited expenditure, especially in social programmes the government had identified, which appealed mainly to the ANC’s core constituency of the working class and poor.
“Going into an election cycle, (the government) would want a big budget to perform ribbon-cutting, such as the opening of schools. That is what all politicians prefer,” Ndletyana said.
“This (revenue shortfall) will worsen the ANC’s performance at the next elections, where the party was going to perform badly in any case,” he added.
Another factor the government will have to grapple with is how to manage public sentiment through the hiking of taxes over the next 10 years to stabilise the gross debt to the gross domestic product (GDP) ratio, where the country’s gross debt has shockingly exceeded the 60% mark, according to Gigaba.
Lesiba Mothata, the chief economist at Alexander Forbes Investments, said that in the fiscal year of 2018/19, tax hikes of up to R40bn would need to be collected to remedy somewhat the anomalous gross debt to the GDP ratio.
Cosatu issued a stern warning to the government not to raise taxes, saying it needed to deal with corruption and cut a “bloated cabinet of 78 ministers and deputy ministers by half”.