Business wants the government to send a signal to SA in the medium-term budget policy statement that it is dealing with problems like the rising public sector wage bill, ailing state-owned entities and the deterioration of public finances.
The medium-term budget, which will be delivered at the end of October, is being seen as an inflection point for SA’s economy. It will happen at a time when the country is awaiting important decisions, including the restructuring of power utility Eskom, which has become a growing burden on the state’s finances.
“The biggest issue for us is to send a signal that we are grappling with these macro issues and challenges,” Sipho Pityana, president of Business Unity SA, said on the sidelines of the Harambee National Solutions Exchange on Youth Employment event in Johannesburg on Thursday last week.
Finance minister Tito Mboweni is expected to outline the full effect that low economic growth, poor tax revenues and increased spending to support Eskom will have on the government’s budget. The debt-to-GDP ratio is likely to overshoot levels forecast in the February budget, as is the government’s deficit.
“The fact that we have not landed on how we are going to contain the debt, I hope will be addressed” in the medium-term budget policy statement, said Pityana.
Along with concrete details on how the government plans to deal with its deteriorating fiscal position, Pityana noted the issue of the escalating public sector wage bill – which accounts for 35% of government spending – as well as the financial and leadership crisis facing a number of state-owned enterprises (SOEs) need to be addressed.
The continued fiscal support offered to parastatals, many of which do not have permanent leadership, is a major concern, said Pityana. A number of SOEs, such as SAA, Eskom and the SA Post Office – all which have received financial support from the state – are without permanent CEOs. Many also do not have fully staffed boards of directors.
Pityana welcomed the ANC’s recent statement acknowledging the need for strategic equity partners in SOEs but questioned whether this went far enough.
“We hope [the ANC] will not be close-minded to the idea that some of these entities need to be fully privatised because in the hands of government they might close and cost us more jobs,” he said.
Ratings agencies will also be watching the medium-term budget policy statement keenly.
“We are expecting a lot from [it] at the end of this month,” indicated S&P Global Ratings associate director Gardner Rusike. S&P rates SA debt at subinvestment grade with a stable outlook, while its peer Moody’s Investors Service has SA one notch above junk.
It would be watching for the adjustments the Treasury must make to deal with the expected fiscal slippage, particularly increased spending to support Eskom.
If the deterioration is “a one-off”, it can be accommodated in S&P’s assessment of SA, Rusike said. If, however, the fiscal deterioration becomes “a new normal” that is significantly weaker “this might … become a point of reflection for the rating”, he said.
Nevertheless, S&P “did not believe there is immediate pressure to change the rating in the near term”, he said. –Businesslive