Carol Paton Writer at Large
Cyril Ramaphosa. Picture: BUSINESS DAY
Cyril Ramaphosa. Picture: BUSINESS DAY

A large government infrastructure fund that can draw in investment and expertise from the private sector is at the centre of President Cyril Ramaphosa’s fiscal stimulus proposal, he told a high-level meeting of CEOs and labour leaders at the Union Buildings on Friday.

Ramaphosa’s proposal has been in the making since it was first mooted by the ANC at the end of July, but last week rapidly began to take form, with Ramaphosa holding high-level meetings on the proposal with officials from the Treasury, the department of monitoring & evaluation and stakeholders.

Ramaphosa, who has vowed to revive the economy and clean up corruption, told the meeting he hoped to emulate the infrastructure fund of Indian Prime Minister Narendra Modi, who has mobilised billions from Indian banks to fund highways, airports and power plants.

Ramaphosa first mooted a stimulus package in July, before shock second-quarter GDP data indicated that the economy is in recession, shattering his stated target of 3% growth in 2018.

While no details were provided on the size of the proposed fund or the cost of the package, a statement issued by his office on Monday said that Ramaphosa "indicated that the stimulus package will reprioritise government spending, within the existing fiscal framework, towards activities that will stimulate economic activity".

It said, "the package will include economic reforms … in mining, telecommunications, tourism and transport".

"The meeting also discussed proposals to establish an infrastructure development initiative that draws in private sector funding and delivery expertise.

"The president welcomed the offer extended by business for the secondment of private sector professionals to government to improve implementation."

However, several people close to the discussions said that it was not completely settled whether the plan would be deficit neutral and funded out of the existing envelope of government resources, or whether borrowing will be expanded to provide a bigger, more effective stimulus.

Finance minister Nhlahla Nene — who addressed Friday’s "economic consultative forum" — spoke firmly of the package being deficit neutral, arguing that reprioritisation of resources towards infrastructure spending would be sufficient to provide the necessary stimulus.

In recent years, the Treasury has been cutting infrastructure spending — mostly in order to reprioritise spending towards funding for higher education and to balance lower revenue collection.

Municipal infrastructure, housing and school building and renovation have all been negatively affected by the cuts, with R46.6bn slashed in 2017/2018; R48.3bn in 2018/ 2019; and R43.8bn in the budget for 2019/2020.

But other government officials argue that with such budget cuts already having been made, as well as additional spending demands such as the higher than budgeted for public sector wage settlement, it will not be possible to provide a large enough stimulus through reprioritising spending.

A third government official said "it was early days … and things could still change".

At issue is SA’s historically high debt levels, which at 55% of GDP are even higher than when the democratic government first took over management of the economy in 1994.

The Treasury has promised credit-ratings agencies and investors that it is on the path to fiscal consolidation and that it will consolidate gross debt at 56.2% by 2022, after which it is projected to begin falling.

The Treasury has also followed a strict expenditure ceiling since 2012 as part of the fiscal consolidation plan.

However, decisions on the shape and size of the stimulus are urgent.

Ramaphosa is believed to want to announce the package before the Jobs Summit takes place on October 4 and 5.

Clarity of the fiscal framework must also be provided well before the medium-term budget policy statement in the last week of October.