Nhlanhla Nene’s maiden budget speech on October 22 will test the country’s new finance minister.
Economists expect that he could be as tight-reined over spending as his predecessor, Pravin Gordhan, perhaps even more so in the face of declining revenues and depressed economic growth.
The country is experiencing a crisis of confidence in the broader government’s financial management, according to analysts, and will look to the treasury for reassurance that it is retaining a firm hand on the nation’s purse strings.
The medium-term budget policy statement, which outlines adjustments to the budget announced in February, follows the International Monetary Fund (IMF) cutting South Africa’s growth forecast to 1.4%, down from 1.7% in July, in its World Economic Outlook released on Tuesday.
The country’s credit rating is hanging in the balance, thanks to rising government debt and the deterioration of important measures of fiscal sustainability, such as the budget and current account deficits. And state-owned entities are appealing for further bailouts. The long-awaited details of a rescue package for Eskom are expected and, according to reports, both SAA and SA Express are looking to the treasury for more money to remain going concerns.
But indications from the government suggest that the way in which the parastatals will receive more funding will be far stricter than in the past and their viability might be reviewed.
In line with what Gordhan started, Nene is expected to extend cuts on “glamour” items.
A financial expert said that Nene’s style and tone would be as important as the substance of his statement.
He follows two finance ministers who held substantial political clout in the ANC and had a capacity for visionary strategies. The markets will be watching not just for credible fiscal promises but also for a man who is able to command arguably the most important government department with independence, fortitude and commitment.
This is crucial as Nene faces key tasks.
The public wage bill has raised its head again as the multiyear public service wage agreement ends in March next year.
He will face off with the public sector trade unions, which are seeking a 15% wage increase and the abolition of the bottom three salary levels of the government’s pay scale.
He must also contend with financing the government’s nuclear power procurement plans, now that it appears that talks with Russia are advancing fast.
Ralph Mathekga, of the consultancy Clear Content, said the government could borrow to finance its growing deficit. But this would have to be done in the light of repeated failures by parastatals and the wider mismanagement of funds by the government, not least of which was the spending on the president’s Nkandla homestead.
He said the public service was experiencing a serious “crisis of credibility” and the treasury needed to reassure the country it had systems in place to make sure the money would go where it was intended. Ensuring value for money was far more of a challenge than financing the government, he said.
The wage negotiations boded ill for the government, Mathekga said. The ANC continued to lose moral ground, hampering its ability to convince its union allies to restrain wage demands in the broader interests of the economy.
According to Investec’s Annabel Bishop, a deterioration in the fiscal deficit projection could be expected, because economic growth was likely to be closer to 1.5% year on year compared with the treasury’s forecast of 2.7%. Furthermore, halfway through the current fiscal year, expenditure was slightly higher than budgeted for when compared to the previous year and revenue collections were lower.
She said Nene would “need to soothe anxiety stemming from the rating agencies around a perceived deterioration in fiscal health”, and he would probably do it by maintaining the government’s ceiling on expenditure.
She said she believed Nene would follow in Gordhan’s footsteps “and be as tight-reined, if not more so through necessity”. Underspending on infrastructure could provide additional savings but would be negative for economic growth.
Referring to the parastatals, she said that government guarantees totalled R466.2-billion, which was deemed “the upper limit of what would be prudent”.
She said Nene’s statement could contain additional guarantees to Eskom, but the rating agencies would scrutinise it to establish the source of the funding. If the guarantees rose much more, they would have a negative impact on South Africa’s sovereign credit rating.