“Given the domestic and global headwinds facing the South African economy, the medium-term budget policy statement (MTBPS) strongly shifts the narrative towards recognising the grim nature of the fiscal crisis that has to be addressed in the country.”
This is according to Prof Raymond Parsons, a well-known economist and academic from the North-West University (NWU) Business School.
“Finance Minister Tito Mboweni frankly and realistically confirmed that, unless progress is made in reducing the cost-drivers of government as well as state-owned enterprises like Eskom, South Africa is in danger of falling into a 'debt trap'. The MTBPS painted a bleak fiscal picture on the basis of an expected growth rate of only about 0,5% in 2019, and a forecast of 1,7% growth in 2020,” he says.
According to Prof Parsons the MTBPS implies that the key mechanisms financing public expenditure, taxes and deficits have reached a point where they reduce the rate of economic growth and hence have also shrunk tax revenues.
“The MTBPS rightly emphasised that efficiency matters, and never more than today. The more the government wastes or spends on non-essential purposes, the less is available for necessary expenditures and the harder it becomes to frame responsible budgets in future.”
He says that, despite the agenda of remedies proposed in the MTBPS, it remains a matter of concern that they fall short of preventing strongly escalating public debt up to 2022/23.
“As long as government spending is not better controlled, the negative debt ratios will continue to rise. The fiscal risk remains in the longer-term outlook and Finance Minister Mboweni is right to urge action now. There therefore needs to be more momentum behind the direction outlined in the latest MTBPS in general – and in particular what further needs to be done to restructure Eskom,” he adds.
“What South Africa also needs to turn the fiscal situation around is a strong and sustained improvement in its flagging growth rate, which must remain the overall priority in economic policy.
“The critical test will be on the one hand the extent to which pro-growth reforms needed to turn the economy around are implemented and, on the other, the extent to which the tough decisions required to break the mould around excessive government expenditure are taken. This will include tackling the vexed question of the role of the public sector wage bill and its disproportionate impact on South Africa's public finances, sooner rather than later.”
