Tito Mboweni has to claw back credibility with budget statement
The task is made more difficult with SA falling two places to 84 in the World Bank’s influential Ease of Doing Business index
The medium-term budget policy statement of 2018 was much more about the drama of the ANC’s internal party politics than our fiscal state. Then we had a reluctant Tito Mboweni taking up the reins as finance minister, being rushed into the seat after the unfortunate but admirable resignation of Nhlanhla Nene.
Heading into this week, it’s the state of opposition politics that grabs the headlines — the effects of which we’ll probably learn in years to come.
But to this week’s main event, the medium-term budget. For us in the business community, this speech is about clawing back credibility, a task made all the more difficult with SA falling two places to 84 in the World Bank’s influential Ease of Doing Business index. President Cyril Ramaphosa has targeted a position of 50 among about 190 countries ranked within the next three years.
In years past, this week’s speech, which doesn’t carry as much weight as the February budget statement, was primarily seen as a marker of just when the state would be unofficially going on its summer holiday.
It couldn’t be more different now as it will serve as a statement of intent of Ramaphosa’s first administration, and it is to be hoped the constant date changes bear testimony to its importance.
If in this environment we are still to receive star billing while the world’s capital markets look for areas of investment, prudent fiscal management will have to be at the centre of our sales pitch
For all the talk of focusing on structural reforms that have been the clarion call of his administration, and the intent to break with the narrative of the past decade of distrust of the public purse due to corruption scandals, it’s the first step in rebuilding credibility in the politics that shape the work within the Treasury.
It comes at an opportune time given global concerns over growth in the world’s developed markets going into the new year. Investors are once again focusing on the fundamentals of emerging market economies such as ours.
But with an economy growing less than 1% in 2018 and a revenue collector set to miss targets for yet another year, its sixth in succession, SA’s fiscal space continues to shrink. We expect a hole of R50bn-R60bn caused by higher VAT refunds, but in the main, low growth.
If, in this environment, we are still to receive star billing while the world’s capital markets look for areas of investment, prudent fiscal management will have to be at the centre of our sales pitch — understandably a significant challenge as SA politics remain hotly contested with vested interests in virtually every sphere of government.
None more so than in the funding of our state-owned enterprises and in particular Eskom. We’ve been primed to receive news about the long-term solution of the state electricity provider’s crippling debt load that nears the R500bn mark. One suspects that whatever their fixes, the political standing of Mboweni and his president, who will be seated just a few metres from his podium on Wednesday, will be severely tested.
He may have won over the ANC’s national executive committee in his surprise economic policy proposals more than a month ago, but Mboweni doesn’t have the connectivity in the party. But that may just be his advantage, as it’s from this distance that the difficult and unpopular choices can be made with the backing of his boss.
There are few choices for Eskom, which has been hanging like a noose over the state for several years — with the state either borrowing, or selling the family silver to fund its debt ratcheted on a badly executed power expansion. Nene had to sell the state’s almost 14% stake in Vodacom valued at R23bn to the Public Investment Corporation to fund Eskom. The bailouts that have followed haven’t been deficit neutral.
Levels of contestation over the Eskom issue are increasing, even at this late hour. Question marks remain over the splitting up of the entity into three parts with no substantive movements there, though this may have been complicated by the search for a new CEO.
On a final debt solution, in which the chief restructuring officer was expected to feature, the Treasury has instead been advised by an external service provider. As such, we are worried that whatever the Treasury proposes as a funding solution in the medium-term budget, it could fall apart with contestation afterwards, or at best be delayed in implementation.
The concern is based on experience. February’s budget appendix speech over Eskom was cut at the last minute on political contestation. With ratings agency Moody’s Investors Service, the last of the big three that has us above junk rating, releasing its review just after this week’s budget speech, we hope our cynicism is proved wrong.
In recent weeks and months, there have been leaks from Treasury officials of the government weighing up various options to support Eskom, including swapping its debt for government bonds or ring-fencing it in a special-purpose vehicle.
The latter, which carries most support, has been advocated. But such a move would simply shift Eskom debt off its balance sheet and onto the sovereign. That’s what investors would eventually deduce.
But what markets and investors are most eager for is an end to uncertainty about the long-term debt commitments. If the medium-term budget, much like the recent release of the Integrated Resource Plan, can provide a level of certainty, it would be a victory.
Mboweni’s speech is one that has to claw back credibility. The wage bill is certainly another element to which we’ll pay close attention. There’s a high probability of small cuts in the wage bill, but politically it will be a minefield for the Treasury to navigate.
We don’t expect Moody’s to change its ratings for the country on the evidence of this medium-term budget, but they, much like the business community, will want the Treasury to take the lead on plans for the future funding of state-owned enterprises.
We’ve long since passed the point of ideological debate, credibility dictates that a decision is made and, in February, acted upon.
• Mavuso is CEO of Business Leadership SA.