South Africa’s Medium-Term Budget Policy Statement (MTBPS) showed more evidence that the country’s debt is being brought under control and that the National Treasury is “keeping a firm hand” on spending, which is, in so doing, leading to business regaining trust, says Business Leadership South Africa (BLSA) CEO Busi Mavuso in her weekly newsletter.
She explained on November 22 that this was important as Treasury had had to impose a restraint on the civil service that had become used to real increases every year and that Treasury was not able to “hold the line” in signaling that government remains firmly on top of its finances.
While the prospect of serious fiscal risk in South Africa had diminished, Mavuso warned that such a risk was "self-reinforcing” as companies’ investment decisions could potentially trigger a wider economic crisis, leading to major shocks on all companies, considering that companies generally factor in the possibility of the collapse of government’s finances.
“Ironically, this is critical to embedding a sustainable solution to the welfare needs of large parts of our population. While Treasury could have simply acquiesced to demands for programmes with [yearly] costs ranging from R50-billion to multiples more, that could only have ever been short term,” Mavuso says.
She notes that such demands would have had to be funded and the only choices would be higher taxes or more debt. “[Either] would have been a serious blow to business confidence, with taxes potentially a serious shock to disposable income in the economy (though somewhat counterbalanced by increased spending from welfare recipients) and increased debt again destabilising government’s financial position. It would have put us back on the road to financial ruin”.
Instead, with the MTBPS, Treasury was able to improve the fiscal outlook from where the country was in February owing to an unexpected windfall from mining taxes.
Mavuso commented that this R120-billion in extra collections had enabled government to fund the special Covid grants instituted during the lockdowns to support the most vulnerable, as well as to increase debt repayments.
As a result, the debt outlook foresees government achieving a primary surplus (which excludes debt-related costs) in 2023/24, which will mark the point at which overall debt levels start to decline.
The minerals windfall has, however, been rightly seen as a short-term boon that will not persist for the long term, she notes.
As such, Mavuso stated that “economic growth is the only sustainable solution to the poverty facing many in our country”.
This, in turn, requires businesses to be confident that the fiscal position is not at risk.
“Growth has a double impact on poverty – it creates revenue that government can then use to fund enhanced welfare and it creates jobs that diminish the need for welfare in the first place.
“This is what we achieved in the decade to 2008 – a period of growing business confidence, investment and employment, while government’s welfare programme expanded dramatically without undermining the State’s financial health. We should be doing everything possible to repeat that performance,” she encouraged.
In so doing, she said, South Africa would start to see the fruits from the recovery in business confidence.
However, an “obviously important further signal” will be the February 2022 Budget, and Treasury will have to show it continues to hold the line then.
Should it succeed, Mavuso noted, it would add positive momentum sparked by the vaccine programme and structural reforms ranging from energy to broadband spectrum.
“These will all push growth levels higher,” she concluded.