Tito’s on a tightrope over hell ... and he’s got SA on his back
The finance minister has overpromised on debt stabilisation, but ditching it would make for terrible optics
Finance minister Tito Mboweni faces a fiscal conundrum so daunting that he has been forced to delay the medium-term budget policy statement (MTBPS) by a week. The problem is he overpromised when he convinced the country in July that SA had to choose an “active” fiscal path that would allow debt to stabilise at 87% of GDP by 2023/2024.
This path was also sold to the IMF as the basis on which it agreed to release R70bn to shore up the 2020/2021 fiscal deficit, which is expected to be a massive 15% of GDP. However, according to work by academic economists and adopted by President Cyril Ramaphosa’s economic advisory council, the 87% target was never remotely feasible and, even if it were, it is not desirable to cut expenditure by the required R230bn given the devastation wrought by Covid-19.
The advisory committee suggests a more gradual path that will allow debt to stabilise at about 100% of GDP a few years later. But to prevent SA’s fiscal credibility from taking a fatal hit in the process, it stresses that the wage bill must be cut, state-owned enterprises (SOEs) reformed and pro-growth reforms urgently implemented. In addition, it recommends the Reserve Bank do more of the heavy lifting to increase the “inadequate” R500bn Covid-19 relief package from 11% to 15% of GDP...