- Parliament has agreed to a last-minute request from Finance Minister Tito Mboweni to postpone the Medium-Term Budget Policy Statement (MTBPS) by one week, until 28 October.
- While the delay is short, it suggests that crucial matters remain unresolved, which may include social grants, funding for South African Airways (SAA) and World Bank financing.
- The postponement may well overshadow President Cyril Ramaphosa’s attempt to put a positive spin on government reform efforts via his recovery plan to be presented tomorrow, 15 October.
Ramaphosa’s Economic Reconstruction and Recovery Plan, which we previewed earlier in the week, will be scrutinized for any quick wins to bolster South Africa’s anemic growth post-pandemic. But the MTBPS delay underscores just how bleak the fiscal picture is amid worsening expectations of how bad the pandemic-induced recession will be and the recent loss of 2.2mn jobs, which has brought the expanded unemployment rate to 42%. The Treasury already delayed the MTBPS briefly last year (as the ministry fought to give an honest account of the already bad outlook), but the second delay comes under infinitely worse economic circumstances.
The specific reason(s) for the delay is still unclear. According to local sources, cabinet has not yet approved the MTBPS. Various pieces of the puzzle still appear to be missing. These seem to include a decision on whether to extend the temporary pandemic social grant payments beyond October; whether to provide South African Airways (SAA) with another ZAR 10.4bn funding to allow for the creation of a slimmed-down carrier; as well as seeming delays in the Treasury’s ability to secure a USD 2bn World Bank loan.
What is clear is that such delays were once unthinkable at the Treasury. The erstwhile ‘super-ministry’ is gradually becoming a shadow of its former self. While markets appreciate the minister’s contrarian views within the ANC context, Mboweni is looking increasingly isolated within the cabinet and the party’s National Executive Committee (NEC). Frequently retreating to his Magoebaskloof farm and entertaining the public with his cooking commentary via Twitter, he is also failing to engage with his technocrats, where high-level ranks are increasingly depleted. There is speculation that a ‘social visit’ last weekend by ex-finance minister Trevor Manuel, who is close to Ramaphosa, was an effort to remind the minister to focus on the MTBPS.
As rumors of a cabinet reshuffle grow, there is speculation as to whether Mboweni could be replaced. Yet with few obvious, credible successors in sight (other than possibly Reserve Bank Governor Lesetja Kganyago), Ramaphosa may need to hang on to his finance minister for another 12 months or so, unless he becomes too distracted and his position untenable. In the meantime, it is uncertain what spending battles Mboweni can win in his quest to stabilize runaway debt by the mid-2020s.
What to watch for in the MTBPS
While the MTBPS headline figures are likely to be a train wreck, the debate over the speed of debt consolidation (i.e. the Treasury’s “passive” vs “active” scenarios) will be closely watched. The majority of cabinet is less fiscally conservative than Mboweni, and Ramaphosa’s expert economic advisory council seems to have poured cold water on whether it is possible, and indeed advisable, to begin to contain debt within the timeframe envisaged by Mboweni.
One crucial item that will be watched is the Treasury’s public-sector wage bill. Mboweni promised significant cuts back in February. On that front, the economic advisory council appears to have endorsed Mboweni’s push for a wage freeze, which could be somewhat easier to justify in the context of shrinking private-sector wages and massive job losses. However, the government is still far from an actual deal: while it has refused to implement the third-year wage increases applicable from April this year, negotiations with unions have advanced little since February and – in a no-deal scenario – the government could lose this case in the courts. Moreover, negotiations for a wage deal for 2021 and beyond have not gotten off the ground, meaning that uncertainty over the administration’s ability to implement any drastic wage freezes will likely linger even if the MTBPS reiterates or hardens the stance on wage bill cuts.
On the crucial question of support for state-owned enterprises (SOEs), Mboweni will try to talk tough. However, whether South African Airways (SAA) receives another ZAR 10.4bn will be seen as a bellwether of his ability to hold the line on money-guzzling SOEs within cabinet. Regarding the much bigger fiscal threat that is Eskom, the MTBPS should not contain additional allocations over and above money already pledged. However, the answer that is really needed is how and when the government will reduce Eskom’s ballooning debt burden, now at ZAR 488bn. The MTBPS seems unlikely to deliver a clear answer, which may come only after the planned Eskom ‘social compact’ is concluded.
Another line item that will be closely watched is whether temporary social grants will be extended. The June emergency budget introduced social grant top-ups (of ZAR 250-300 per recipient per month) for existing recipients and additional distress grants of ZAR 350 to unemployed adults not receiving existing grants. These payments are due to end in October and Mboweni has tried to manage expectations by stressing throughout that the grants are only temporary. However, for the first time, the pandemic has begun to breed consensus around the long-running debate over a basic income grant (BIG). Taking away this little lifeline from households will hardly be easy, not with the economy in free fall nor with local elections looming in 2021.