EDITORIAL: Government must find nerve to push through reforms
We wait to see if Eskom bail-out plan works to convince ratings agencies that SA is serious about turning economy around
So much has been said about what happened during the almost 10 years that Jacob Zuma was president of SA. Finance minister Tito Mboweni on Wednesday delivered a budget that confirmed that it is now payback time.
He didn’t pull any punches in acknowledging the mess that the country finds itself in. The numbers are stark and make for pretty grim reading. The budget deficit will balloon to 4.5% of GDP in 2020, the widest since the depths of the global financial crisis.
SA had the misfortune of having Zuma rise to the presidency just at the time when local and global events required strong and ethical leadership. The initial fiscal slippage was largely seen as necessary in the beginning as countries across the world were looking at ways to stimulate their economies.
The numbers are painful to look at. But the country had very little choice.
We know what has happened since then. As the rest of the global economy started to recover, we got stuck in a decade of virtually no growth and rampant corruption, withstate capture destroying previously world-class institutions such as the SA Revenue Service (Sars) and Denel.
The biggest state owned enterprise, Eskom, became the site of the worst of the looting, plunging the economy into periods of literal darkness. The utility’s debt has now jumped to more than R470bn and can’t be serviced through revenue. It will require assistance of about R150bn over the next decade. The government has earmarked R69bn over the next three years to help the utility service its debts.
The numbers are painful to look at. But the country had very little choice. Maintaining the stance that no money was forthcoming would have hardly seemed credible, considering that Eskom has already given indications of its ability to bring the country to a complete standstill.
So the government will be hoping that this will be the generous interpretation from Moody’s Investors Service, the last of the major ratings agencies to have the nation’s debt on an investment grade. They are unlikely to be impressed with the numbers, which will see the country increase the issuance of long-term debt 18% over the next year to R2.16-trillion.The rules of supply and demand would indicate that bond yields, reflecting what the government pays to borrow, will increase.
That means less money for education, hospitals, defence, the police and a whole range of other services.
That’s even before a ratings downgrade, which economists have said previously could see as much as $10bn flow out of the country’s bonds, as investors who have rules that prevent them from investing in sub-investment grade paper take their money elsewhere.
Something had to be done, and quickly. Time will tell if it will be enough to convince them.
A potential bright light on the horizon is that the government is taking action to fix Sarsand has been responsible enough to not factor in any gains from this source, considering the revenue shortfalls that have been seen in recent years. This means there is potential that the revenue numbers might well prove to not be as dismal as they look today.
For any of this to transpire, the government will have to show the necessary courage to push through reforms. That, for a start, will mean standing up to trade unions and other vested interests that have shown a willingness to sabotage moves towards reforms.
There’s already grumbling that elements within the ANC are opposed to the break-up of Eskom and the privatisation of the transmission part of the business.
Recent history doesn’t give one reason to be filled with optimism. President Cyril Ramaphosa simply has to prove the skeptics wrong.
As Mboweni said, consultations cannot last forever and the government has to finally show that it’s ready to govern.
From tough talk on saving Eskom and Sars, to increases on tax on alcohol and cigarettes - we take a look at which aspects of Finance Minister Tito Mboweni’s 2019 budget will hit close to home.