Finance minister Tito Mboweni. Picture: GCIS/ELMOND JIYANE
Finance minister Tito Mboweni. Picture: GCIS/ELMOND JIYANE

The 2020 medium-term budget policy statement (MTBPS), being tabled on Wednesday in parliament, may be SA’s most important budget to date.

Three main issues stand out: the credibility of the debt consolidation path; the treatment of state-owned enterprises (SOEs); and the detail around Operation Vulindlela, a new joint initiative between the National Treasury and the presidency to drive the government’s new economic reform plan.

How these issues are handled will signal the government’s commitment to fiscal consolidation and economic reform as well as how much political power the Treasury still wields. If the markets are disappointed, the rand will likely weaken and bond yields spike on the day.

1. Credibility of the debt path

Here, we expect some slippage on all the main fiscal ratios, as the Treasury will likely revise down its 2020/2021 GDP and revenue growth forecasts in line with consensus estimates.

This means that the 2020/2021 main budget deficit will likely exceed 15% of GDP and the debt ratio surpass 82% of GDP.

This needn’t be a train smash, however, as long as the “active scenario” adopted by finance minister Tito Mboweni in July – which had the debt ratio stabilising at 87.4% in 2023/2024 – isn’t ditched completely.

Nobody wants to see Mboweni’s “passive scenario” play out, where the debt ratio explodes through 100% as early as 2023/2024 and hits 140% by the end of the decade.

Still, the 87% target lacks credibility. For one, it requires that R37.8bn be stripped from the wage bill this fiscal year – something that will only transpire if the government wins its court case against labour.

To hit that 87% target, the government will have to make R230bn in spending cuts over the next two years, which implies a major reduction in public programmes and services at a time of unprecedented socioeconomic distress. However, there is growing pushback from civil society, which is demanding that the state make the special Covid-19 grant permanent and increase overall spending, despite SA’s looming fiscal crisis.

One option is for Mboweni to adopt an “active lite” scenario, where the debt ratio stabilises a bit higher and a bit later than before, perhaps at 100% by 2025. The optics will be appalling, and some will decry it as an abandonment of fiscal discipline, but at least it will be credible.

2. Dealing with SOEs

Of course, Mboweni’s plan will be a lot more credible if the MTBPS deals decisively with SOEs, including through closures, mergers and asset sales.

Mboweni has already said the R10.4bn bailout for SAA will be funded in a fiscally neutral way (by cutting spending elsewhere), but unless fresh bailouts are denied to other serial offenders, any hope that the government is serious about reforming the SOE sector will evaporate.

The MTBPS will only hang together if it is premised on a growth upswing. Mboweni is likely to revise his 2021-2023 GDP forecast up from the 2.6%, 1.5% and 1.5% pencilled in in July. He will probably justify it on robust third-quarter economic indicators and the fact that the government’s economic reconstruction & recovery plan (ERRP) is finally set to be rolled out.

3. Details needed for Operation Vulindlela

Which brings us to Operation Vulindlela. The detail matters here: who will run it and staff it and how will it be any different from the status quo, in which the Treasury and presidency have manifestly failed to light the fire of reform under the rest of the government?

Expect a hard sell from Mboweni on President Cyril Ramaphosa’s economic recovery plan, and the promise of the new joint unit to drive it home as a way of bolstering the credibility of his new growth forecast and debt stabilisation plan.

As everyone knows, it will take more than a good-enough budget to halt SA’s downward fiscal slide; it must happen in tandem with urgent pro-growth reforms. But after a decade of disappointments, most are deeply sceptical of the state’s ability to execute policy.

This is why, even though the MTBPS is likely to mount a valiant attempt at righting SA’s fiscal ship, the fear is that it will ultimately prove unconvincing.

*Bisseker is the FM’s economics reporter


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