Finance minister Tito Mboweni deliver​s his medium-term budget statement in parliament in Cape Town, October 28 2020. Picture: ESA ALEXANDER/SUNDAY TIMES
Finance minister Tito Mboweni deliver​s his medium-term budget statement in parliament in Cape Town, October 28 2020. Picture: ESA ALEXANDER/SUNDAY TIMES

The weekend ratings downgrades have brought into focus the reality that SA is at a crossroad. It did not have to come to this.

In his memoir, Choice Not Fate, former finance minister Trevor Manuel recounts how in the early 1990s he, Tito Mboweni and a handful of others met then finance minister Derek Keys to discuss the country’s finances. According to Manuel, Mboweni pointedly asked Keys how much the government owed. After a suspenseful pause Keys responded, firmly and honestly: “I don’t know.”

This is the context in which we must understand democratic SA’s early days. When the Thabo Mbeki, Manuel and Mboweni triumvirate set out to design a new macroeconomic framework they did so with the understanding that without energetic fiscal and other reforms the mounting debt burden would eventually undermine the country’s economic potential.

They set out to build a framework focused on faster fiscal deficit reduction to contain debt service obligations, counter inflation and free resources for investment; developing an exchange rate policy that kept the real effective rate stable at a competitive level; consistent monetary policy to prevent a resurgence of inflation; and a gradual reduction in tariffs to contain input prices and facilitate industrial restructuring, compensating partially for exchange rate depreciation.

Nowadays, the Left detests the Growth, Employment and Redistribution (Gear) strategy, believing it is the genesis of current problems. However, if one assesses Gear as a balance sheet it is difficult to come to any conclusion other than that it was a resounding success.

Markedly improved

In the decade before it was adopted total government debt to GDP had grown from 32.8% to 56%; debt service costs in 1996/1997 were 6.4% of GDP, or just more than 21% of national budget expenditure. By adopting a set of clear policy goals and matching that with dogged determination and an uncanny ability to stare down their more wayward comrades, Mbeki, Manuel and Mboweni averted a fiscal crisis.

By the time Mbeki stood up to take his oath of office on a chilly June morning in 1999, SA’s fiscal position had markedly improved. Unbeknown to him at the time, a vortex of domestic and global tailwinds would propel emerging markets broadly, and SA specifically, to uncharted growth levels.

Mbeki and his team understood the now often recited idiom that you must fix your roof before the rains come. In the period leading up to 2008 prudent fiscal policy choices and strong economic growth created the fiscal space to support economic and social development.

Consolidated government spending increased by an average of 10% per year in real terms between 2004 and 2008, allowing the government to significantly grow expenditure on social services, increase transfers to households and accelerate infrastructure investment.

Sound fiscal policy management ensured these trends did not result in unsustainable financing of government expenditure. The budget deficit as a percentage of GDP was managed down from a peak of 7.5% in 1996/1997 to a surplus of 1% in the 2006/2007 fiscal year. The government’s debt service costs reduced significantly, from 6.4% of GDP to just 2.6% over the same period.

Crisis indicators

After the recession in 2008 the government adopted a countercyclical expansionary fiscal stance and stimulated demand in the economy. However, despite this support the economy has grossly underperformed. Now SA faces difficult choices in a rapidly changing world. Economic growth, which has steadily weakened over the past five years, is likely to increase only moderately over the medium term.

Indeed, there are already many indicators of crisis. This year the government will borrow a little over R2bn daily. Next year we will spend more on debt service than any other government function other than “learning and culture”.

Mboweni, the last remaining member of the triumvirate, has been a central actor in SA’s economic policy for 25 years. He and his generation’s Herculean effort to dismantle the legislative, institutional and cultural edifice of apartheid must be applauded. Is it expecting too much of him and the national executive to steer SA into safe harbour again? Or for them to take radical new approaches to problems they have been trying to solve for almost 30 years?

The country urgently requires a new cadre of ethical leaders to fulfil its potential. They are out there, across political organisations, in academies, private enterprise and at different levels of government. What is required is a mechanism to organise and bring this talent to the fore.

Hobbled by indecision, weighed down by the burden of extreme inequality, constrained by a lack of fiscal headroom, SA is at a pivotal moment in its history. The consequences of choosing the wrong path (and leaders) will be felt for many generations.

• Khoza is an investment banker based in Johannesburg.

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