Joburg on a path of fiscal consolidation
City can see the impoverishment and stagnation elsewhere caused by lavish spending and mismanagement
A few months ago, electorates in the metropolitan region of the City of Johannesburg voted to usher in change, expecting the new administration to set in motion public policies that significantly improve their lives.
The electoral outcome was a discernible rejection of the malaise and maladministration that were destroying our communities and an expression of voters’ hope that reforms will secure their wellbeing and that of the country.
We listened to our people and have crafted a responsive public policy framework. Its public finance foundation is premised on prudence, fiscal discipline and proactive policy implementation fervour. These are financial management policy properties that converge to grow the economy and I call this approach symmetric public finance philosophy.
In this devotion to astute public finance management, I am not alone. The great public finance philosopher and practitioner of old, Alexander Hamilton, emphasised the role of fiscal prudence as the cornerstone of treasury management. This perspective transformed a disparate, agrarian and often rebellious collection of states into an economic powerhouse that is the US, the biggest well-diversified economy in the world today.
Not that we have better alternatives to this correct treasury management dispensation. Poorly thought out fiscal expansionism has destroyed many a country. The Indonesian financial crisis in the mid-2000s was worsened in major part by fiscal expansionism as then president Muhammad Suharto ran fiscal deficits in the preceding decade to finance patronage networks and some questionable vanity projects.
On our own continent, Ghana followed suit and between 2012 and 2016 the average annual budget deficit was 9%. Ghana’s worst fiscal deficit was recorded in 2008, when it reached 24%.
These financial policy missteps eventually reduced a resources-rich African economy to rubble: public debt to GDP has been surging and is now at 70%; for the past five years, the annual economic growth rate has averaged less than 1%.
This shambolic state of affairs is menacing the population — the inflation rate is 15% and unemployment is soaring, at 33%.
The alternative to fiscal consolidation is fiscal erosion and this has constrained the economic vitality of many a nation
Economic mismanagement ultimately cost then president John Mahama re-election, to be replaced by John Akufo-Addo — evidence that our people are tired of poverty-inducing policies and sloganeering.
In the City of Johannesburg, we reject these asymmetric financial and economic policy choices and opt for refined fiscal conservatism because it is correlated with public welfare and economic growth.
Our resolve to pursue financial prudence is being tested. Already, Johannesburg’s debt level is close to the legislated threshold, at 45%. Unemployment in the city is significant at 33%. Our municipal administration inherited daunting infrastructure backlogs and weak business confidence levels.
To a typical unprincipled municipal government, all these challenges could easily prompt the introduction of a populist public finance policy regime, but we choose rationality and fiscal consolidation. This will be achieved by adopting austerity measures in relation to public expenditure, increasing revenue streams through innovative means, improvising on debt-collection methods, improving the billing system and fighting graft and corruption.
Indeed, the alternative to fiscal consolidation is fiscal erosion and this has constrained and compromised the economic vitality of many a nation.
In Brazil, the populist and left-wing government of Dilma Rousseff increased expenditure 13% in 2014 despite a decline of 7% in revenue from taxes and royalties during the same period. By 2015, economic populism had resulted in a sovereign credit rating downgrade to speculative status. This is causing an escalation in the cost of debt, loss of investor confidence and fiscal erosion.
Closer to home, Mozambique is suffering a similar fate. The government of former president Armando Guebuza chose to ignore fiscal consolidation and austerity in public spending and secretly piled up public debt, now estimated at 130% of GDP.
The treasury does not have the capacity to service debt and some analysts note that the government’s repayment capacity for the whole of 2017 is a mere $25m. Mozambique is required to repay $38m in January 2017 alone.
Default is clearly in the offing for Mozambique and this was brought about by the government adopting a capital structure that is not consistent with fiscal sustainability.
For example, Mozambique issued a $726m tuna bond in 2013 to purchase a tuna-fishing fleet. Instead, the loan was used to buy patrol vessels and security equipment. This is their own version of the arms deal and it is laced with customary corruption and sleaze.
The government’s repayment capacity for the whole of 2017 is a mere $25m. Default is clearly in the offing for Mozambique
Deeds count in public finance policy and mere talk does not improve governance or the quality of the social contract. My approach to public policy implementation therefore follows the new paradigm, according to which public policy trajectory purposefully reflects the electoral mandate.
Political leadership intimately oversees the entire integrated development planning, crafts the budget and is responsible for the prudential management of finances. This approach brings to the fore Plato’s ideal city state, hence my faith in the role of agile and capable technocrats in policy implementation and
The Japanese economic revival since the Second World War was made possible by the confluence of political management of economic policy, a capable technocracy resident within the ministry of international trade and industry and adherence to symmetric public finance philosophy.
Irrefutably, fiscal discipline, political leadership and capable technocracy are the potent building blocks of an effective public finance management strategy, a policy recipe we are implementing in the City of Johannesburg for the benefit of all its residents.
• Dagada (@Rabelani_Dagada) is Johannesburg mayoral committee member for finance