BLSA has concerns about South Africa’s debt servicing after medium-term budget speech

28th October 2020

By: Marleny Arnoldi

Deputy Editor Online

     

Font size: - +

Business Leadership South Africa (BLSA) has expressed disappointment at Finance Minister Tito Mboweni’s allocation of R10.5-billion to embattled South African Airways (SAA) in the Medium-Term Budget Policy Statement (MTBPS) that he delivered on October 28.

This follows the consultancy advocating for no more State-owned-entity bailouts in an open letter to the Minister last week. 

BLSA CEO Busi Mavuso says the funding was reallocated from other departments and programmes, which will now not be spent on social needs and investment for growth. She says she hopes it is the last time SAA receives a grant of non-investment expenditure.

Mavuso further comments that with the Minister comparing South Africa’s fiscal position to that of the end of Apartheid, it shows the serious crisis the country is in.

While ordinarily the MTBPS is a routine update on government finances, the latest speech carried far more significance given the crisis South Africa is in.

"Covid-19 has taken a serious financial situation and made it much worse by damaging the tax base and increasing costs for the State. The rapidly opened hippo’s jaws – the gap between government spending and government revenue – need to start closing," she states.

The MTBPS has set out a fiscal path that sees those jaws closing more slowly than in the emergency budget of June. Government is borrowing R2.1-billion a day. South Africa’s debt will therefore peak at 93% of gross domestic product (GDP) in 2023/24, when the country will be spending almost 6% of GDP on debt service costs.

“This is an extremely worrying outlook in which any slippage will leave the country unable to pay its debts,” Mavuso states.

As BLSA described in its open letter, boardrooms across the country are concerned about fiscal sustainability. Investment is difficult without confidence that government will continue to have access to a well-functioning bond market with reasonable costs of debt.

Lenders are obviously concerned about South Africa’s ability to service debt while revenue is shrinking. As the MTBPS document puts it: “Failure to address the deterioration in the fiscal position could lead to a sovereign debt default, which would result in a reversal of many gains of the democratic era.”

Mavuso reiterates that businesses will invest if they can understand and believe in the outlook.

“For several years, we have been watching declining per capita income levels while the State has got increasingly into debt. The Covid-19 crisis was a serious blow to what was already a sick patient.

“We must be completely resolute in managing the debt load and ensure we stick to a recovery path. We have talked for years about the structural reforms needed to do it, all that matters now is implementation.”

Mboweni warned that current trends would lead to a fiscal crisis like that seen in Argentina and Ecuador. That would be devastating to the whole country, effectively giving up sovereignty to lenders.

“Unlike the financial crisis when government finances were in good health, there simply is no money for government to be able to spend its way out of this crisis,” says Mavuso, who adds that there needs to be prioritisation of spending on areas that are most beneficial for growth, particularly in infrastructure investment.

She says that while the MTBPS is not a policy platform, "we needed to see continuity with the President’s Economic Reconstruction and Recovery Plan that was announced two weeks ago, ensuring National Treasury will align spending and the policy reforms within its scope".

“National Treasury’s [and the Presidency's new] Vulindela [delivery unit] process, which has been endorsed by Cabinet, outlines a wide range of structural reforms that are needed to unleash the economy and return it to growth.”

Mboweni said a technical team staffing the Vulindlela delivery unit, headed by Dr Sean Phillips, will draw on capacity from the public and private sectors and work with the Presidency.

“This is a positive signal and BLSA looks forward to engaging with the technical team to discuss how the private sector can contribute. Our members and others have signalled their willingness to work with the State to fill capacity gaps to ensure we can jointly confront the historic challenge that our country faces,” Mavuso comments.

Mavuso concludes that business wants to grow – it just needs the right environment to be able to do so. “We need to have reliable electricity and efficient access to infrastructure to do business, including transport and communications. Businesses are willing and able to work with the State to deliver that environment.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Comments

The functionality you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION