Kodwa claps, but everyone else sees the writing on the wall after Gigaba’s budget
Economists say another round of rating downgrades is inevitable, while opposition MPs say the minister had his political survival in mind
While ANC spokesman Zizi Kodwa applauded Finance Minister Malusi Gigaba’s "frank" account of SA’s finances, economists and opposition parties were less enthusiastic, with some saying a ratings downgrade is now inevitable.
Gigaba delivered his first medium-term budget policy statement in Parliament on Wednesday following a walkout by the EFF, and in the midst of the rand’s crash to a 10-month low.
Gigaba’s speech skirted around many uncomfortable aspects of the country’s fiscal risks but he did talk tough on the management of state-owned enterprises that use government guarantees.
But Kodwa said Gigaba’s frank account should be appreciated as a bold step in mending the economy and state-owned entities.
"What is important is his boldness and willingness to appreciate the difficulties in a very frank way without giving false expectations to the nation," said Kodwa.
"The boldness of leadership to stabilise the SOEs is also important … SOEs are the bedrock of our developmental state."
Kodwa said a negative reaction from the markets was to be expected after the changing of guard at Treasury, and the same thing had happened when Trevor Manuel took to the helm.
"Markets react to perceptions. It is most important to do what is right and they will eventually respond positively."
Opposition MPs speculated that Gigaba had the ANC's December elective conference in mind, panning the medium-term budget as being thin on detail and glib when it came to commitments to bring about fiscal stability and turn SOEs around.
DA MP David Maynier said it underscored a catastrophic state of affairs in President Jacob Zuma’s government.
“The budget deficit blowout results in an increase in national debt of R67.9bn to R2.3-trillion, or 54.2% of GDP; and an increase in debt service costs of R900m to R163.3bn in 2017-18. The budget blowout ricochets through the medium term, pushing national debt to R3.4-trillion, or 59.7% of GDP, in 2020-21,” said Maynier.
Watch the highlights of Finance Minister Malusi Gigaba's speech:
COPE MP Mosiuoa Lekota told reporters outside Parliament that he was devastated by what he called the lack of clarity on servicing the country’s debt.
Servicing debt remains the fastest-growing category of expenditure for the medium term, as gross debt continues to expand.
Lekota said the speech did not give him any comfort that SA was on top of its debt challenge or that it could avoid incurring even more unsustainable debt in the medium and long term.
"We are falling behind in terms of paying interest on our debt, which means by the time we get to the outer year that interest will be much, much higher than when we originally accounted for it. Then we will never be able to solve the problem of our debt."
Lekota said the long-term effects of the growing debt, compounded with the poor performance of the rand and the economy, would subject SA to a multi-generational debt trap.
"Generations of our children are going to inherit debt. They are going to be born and go to the grave still paying the debt this administration has made. This is inequity that we are now going to pass on to our children and our great grandchildren. I am just devastated," he said.
BNP Paribas economist Jeffrey Schultz, said: "Fiscal consolidation plans seem to have been largely abandoned. We believe that not enough was done to instil confidence that fiscal consolidation remains front of mind for the Treasury and as such I think ratings downgrades by S&P and Moody’s and Fitch are inevitable before the end of the year."
If the ratings companies "don’t do anything after today they are frozen behind the wheel", said George Herman, chief investment officer at Citadel Investment Services.
"The ratings downgrade is now all but guaranteed, it’s just a matter of them saving face and deciding when to do it."
IFP MP Narend Singh told Business Day that Gigaba had failed to reassure him that he was in control of the economy’s health.
“Government debt is just skyrocketing, from 40% of GDP to 60% of GDP by 2021. By 2021 of every rand that we contribute in tax, 15c goes to servicing debt.
“That is not acceptable. We do hope that after December something more concrete will come up in the main budget, because for now he has said nothing,” said Singh.
He said he was open to the possibility that Gigaba might have delivered a cautious medium-term budget in light of the approaching elective conference before making any more definitive statements on the fiscus.
“I would have liked him to go into detail on macroeconomic reforms. He spoke about SOEs and their drain on the system, which they certainly are. There was no detail on commercialising. It doesn’t give us any hope that he knows what he’s doing at this moment in time,” he said.
The ACDP's Steve Swart said he was encouraged by the minister’s statement that SOEs would be kept on a tight leash, although he feared this could be undermined by elements including a possible nuclear deal down the line.
UDM MP Nqabayomzi Kwankwa said the minister’s speech did not give strong reassurance to South Africans but rather appeared to be a balancing act on the minister’s part to ensure his survival at the December conference.
“The medium-term budget policy statement was disastrous. It did not come up with anything concrete or new. It came across as a speech which he would use for political posturing in December to appease both factions hoping to remain on after the conference.
“As far as them trying to fight corruption and reducing waste I have been saying that he and his party have the credibility of a cat that conducts a commission of inquiry into the disappearance of mice,” said Kwankwa.