EDITORIAL: Ebrahim Patel joins the crisis denialists
Patel’s idea of a sovereign wealth fund shows the government is burying its head in the sand
SA politicians are probably not unique in their tendency to stick their heads in the sand and have outlandish dreams, when the other option is to deal with everyday problems.
One such case that caught the eye recently was President Cyril Ramaphosa’s state of the nation speech with its vision of smart cities and bullet trains.
Unsurprisingly, the reaction from most people was that while it would be nice to one day have the sort of trains one finds in Tokyo or Singapore, for most South Africans first prize would be municipalities that work and that can provide basic services such as running water that is safe to drink.
While it’s good to dream big, for most of us having functioning schools, hospitals that have needles and clean bedding, and a police service that effectively serves communities will do for now.
It’s a similar story with the state of our finances. By all measures, the country is in the midst of a fiscal crisis that is more likely than not to result in SA losing its last remaining investment-grade rating, which may translate to a weaker currency and more punitive borrowing rates.
The debt-to-GDP ratio, a measure that’s watched closely by ratings agencies, is rising and the government’s forecast of it stabilising around 60% in 2023/2024 is already looking wildly optimistic. Moody’s Investors Service has said it may climb towards 70%, depending on the level of support needed for the country’s state-owned enterprises, principally Eskom.
From the information we have, things are getting worse. GDP shrank more than 3% in the first quarter, making it unlikely that we’ll manage a growth rate of above 1% in 2019. And that also means the government will likely miss its 2019/2020 budget deficit forecast of 4.5% of GDP, which in itself would be the widest since 2010, just as Jacob Zuma’s reign of destruction was starting to take shape.
Eskom is in a worse state than anybody imagined and the government’s R230bn bailout plan is likely to prove insufficient.
The newly appointed deputy finance minister, David Masondo, was realistic enough about this, telling Bloomberg on Monday that having a functioning Eskom is more important than worries about blowing deficit targets.
This has been justified on the ground that the utility, which supplies virtually all SA’s electricity, is too big to fail and that rescuing it will at least ensure the economy generates some growth. It is hard to argue against that.
Sars commissioner Edward Kieswetter’s admission that the agency, which he is in the process of revamping after it was ravaged as part of the state capture project, could miss its revenue target for a sixth consecutive year was hardly a surprise.
But it adds to the gloomy picture on the fiscal outlook, which is made worse by the absence of an indication that finance minister Tito Mboweni and his colleagues in government have anything resembling a plan to arrest the slide.
And in the middle of this, you have trade & industry minister Ebrahim Patel telling the nation that we have an urgent need to set up a sovereign fund to stash all the excess cash that we don’t have, and are unlikely to have soon.
“You’ve got to think ahead as a society … let’s create the legal vehicle and then when you have significant resource receipts then you put a portion of that into the sovereign wealth fund to be reinvested in a diversified portfolio,” he said on the sidelines of the Group of 20 summit in Japan at the weekend.
Perhaps there is a commodity price boom on the horizon. Let’s hope it comes sooner rather than later because our state coffers need it.
Unfortunately, it’s unlikely that after paying all the debt we are accumulating now we’ll be left looking like a Norway wondering what to do with our new-found riches.
Talk of sovereign wealth funds, while we should be rolling up our sleeves and boosting our economy, just adds to the impression of a government that’s short of ideas. Action, not fantasy, is what’s needed.