South Africa’s failing economy is no secret. Such is the current financial climate that during the 2020 Medium-Term Budget Statement, Finance Minister Tito Mboweni pointed out the economy is expected to contract by 7.8% this year, seeing 2021 looking rather depressing.
At present, Mboweni explained that as bleak as things may seem, the National Treasury has tabled a five-year fiscal consolidation pathway to promote economic growth, while bringing the country’s debt under control.
But this seems like a fantasy, or better yet another political spin—Especially as Mboweni himself pointed out the stock of gross debt will rise from roughly R4 trillion this year to a pant’s soiling R5.5 trillion in 2023/2024.
He goes on to say, “Our revised fiscal framework puts us on a course to stabilise the ratio of debt-to-GDP at around 95% within the next five years.”
While he affirms that the National Treasury forecasts the economy will expand 3.3% in 2021, a further 1.7% in 2022 and 1.5% in 2023, is Mboweni and his team merely optimistic in the economic growth barring in mind, the mass exodus of Taxpaying South Africans leaving the country, coupled with the continues strange Bill amendments being proposed, major political unrest and need I carry on?
This is important to consider, as, in June 2020, Statistics SA found the country’s economy recorded its third consecutive quarter of economic decline, falling by 2,0% (seasonally adjusted and annualised) in the first quarter of 2020.
In its report, Stats SA found that not only did economic activity decrease in sectors such as manufacturing and mining, but investment spending (gross fixed capital formation) decreased by an unbelievable 20,5%, the biggest fall since the 2008–2009 global financial meltdown.
Adding to this rather sombre news, during his Medium-Term Budget Statement, Mboweni highlighted the in-year revised central budget deficit is now expected to be R707.8 billion—being apparently a little better than the Special Adjustments Budget.
Government is also apparently broadening its financing strategy to include drawing down on sterilisation and foreign currency deposits. Mboweni explains, “We are also borrowing at favourable rates from international finance institutions. The MTBPS Review and Adjusted Estimates of National Expenditure provide greater detail on our fiscal and borrowing plans.” But should Mboweni even be boasting how the country is borrowing at favourable rates?
Presently, the country has borrowed $1 billion from the New Development Bank, the lending arm of the BRICS group of nations, a further $4.3 billion from the International Monetary Fund, as well as R5 billion ($310 million) from the African Development Bank and another $50 million from the World Bank.
To offer some perspective into where we stand in terms of our ever-growing debt—Mboweni, himself said the Government is borrowing at a rate of R2.1 billion per day.
Then there is the fact that the Government still insists on bailing out state-owned enterprises. This saw a jaw-dropping R10.5 billion being allocated to SAA to implement its business rescue plan, leaving every South African fuming, asking the question, why waste the budget? Would this money not have been better used in paying the country’s debt? Or better yet investing R10.5 Billion into the private sector seeing as though it is the sector hurt the most during the national lockdown.
In conclusion, in June of this year, Bloomberg found South Africa’s debt levels will exceed 100% of the gross domestic product in 2025, and according to a document presented by Mboweni and seen by Bloomberg, the debt can possibly rise to almost 114% before the end of the decade. But don’t worry, Tito has a plan.
Saving the best for last, during a presentation by Mboweni to the National Economic Development and Labour Council earlier this year, it was discovered the preliminary estimates showed the gross Government debt climbing to 80.5% of the gross domestic product in this fiscal year.
While Mboweni assures the Medium-Term Budget will look at resolving the country’s financial standing, can the country’s leadership see it through? Or will the further lending and corruption see our country unable to pay the ever-increasing debt, which ironically is due to mismanagement and corruption?
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Authors: Quinton Boucher & Calvin Swemmer
Edited: Calvin Swemmer
