EDITORIAL: Tito Mboweni’s budget unlikely to have any positive surprises

For someone who was apparently not keen on the job at all, finance minister Tito Mboweni will have a lot of weight resting on his shoulders on Wednesday.  

In the weeks and months following his appointment after Nhlanhla Nene was felled by a scandal involving undeclared meetings with the Gupta family, whose name became synonymous with the corruption and excesses of the Zuma presidency, or what President Cyril Ramaphosa calls nine wasted years, Mboweni made no secret of his lack of enthusiasm.

He let whoever was willing to listen know that he only took the job, and gave up lucrative private sector directorships, at the insistence of Ramaphosa. Also, he often stated that he regarded it as a bit of a demotion from his time as governor of the Reserve Bank.  

So it seems to be odd that he will be delivering what is potentially SA’s most important speech since the advent of democracy. So much rides on it.

The market focus will be on the sorry state of the state-owned enterprises, with the size of the likely bailout for Eskom set to hog the limelight. This paper has often argued that throwing money at the utility, which provides nearly all the country’s energy, will be a futile exercise in the absence of tough decisions to deal with its business model and bloated workforce.

In the more optimistic days just after Ramaphosa took over the leadership of the ANC and Eskom got a new board, it seemed that even its management was getting this. But after a few rounds of load-shedding, a consensus has developed that the utility is too big to fail, so we can brace ourselves for the government finding money somewhere for it.

It’s a pity that we can’t say the same about efforts to fix it in the long term. Less than three months before the country holds elections, the government has given every indication that it doesn’t have the stomach for a fight with the unions, who have threatened war in response to everything from proposals to break up the utility to cutting the wage bill. Ramaphosa has already said there will be no job cuts at Eskom. In other words, the unions have won.

It’s hard to see Mboweni pulling a rabbit out of the hat and producing a deficit-neutral bailout for Eskom. All things being equal, this should be negative for bond markets, meaning our deficit and and debt-to-GDP ratio will continue moving in the wrong direction.

Then there’s is the begging bowl from other state-owned companies, from SAA to the SABC. While all the data indicate that there is no money, politicians feel differently.

Communications minister Stella Ndabeni-Abrahams, who was allegedly instrumental in blocking restructuring plans that involved job cuts at the broadcaster, was on Twitter over the weekend announcing that she had met a team working on a government bailout for the SABC. The choice of words is telling: government — where it should be taxpayers or citizens. It’s easy to be generous with other people’s money.

When Mboweni presented the medium-term budget policy statement, the figures looked concerning enough. He predicted a budget deficit that would reach 4% of GDP in 2018/2019, then rise to 4.2%, before stabilising again at about 4%. Debt as a percentage of GDP was forecast to peak at 59.6% in 2023/2024. This was based on an already dismal growth forecast of just 0.7% for 2018.

Nothing that has happened since has suggested that this picture will improve. Eskom’s latest load-shedding has seen economists rush to revise downwards their growth forecasts, so we can almost certainly forget about a positive surprise driven by higher-than-forecast growth. Another avenue to improve the fiscal outlook is to get on with the restructuring of state-owned assets, including privatisation. That also seems unlikely.

We can also rule out substantial cuts in spending, while there is likely to be no political appetite for tax increases beyond the low-hanging fruit in the form of fuel levies and higher sin taxes. 

Perhaps Mboweni has a surprise for us that changes the trajectory into a more positive path. But we find very few reasons to be optimistic.