By Frans Cronje
Finance Minister Malusi Gigaba’s Budget may have done enough to stave off the risk of an imminent downgrade, but in the absence of any indication of the profound changes in policy direction that South Africa now requires, the reprieve will probably be temporary.
This forces the question as to whether President Cyril Ramaphosa can translate his political ascension into an economic reformation.
Ultimately, President Cyril Ramaphosa and the Cabinet he appoints will have to up their game, because what was presented in the Budget is far from a compelling case for economic growth.
It is worrying that the medium-term expectation is for South Africa to continue underperforming regional and emerging market growth averages by around 50%.
The current growth projections will put paid to the prospect of a medium-term employment uptick.
That reintroduces risks of political instability, and presents a horizon for the Ramaphosa honeymoon.
The government is in a wholly unsustainable fiscal position.
Government expenditure now accounts for a record more than 30% of GDP. Even as the economy was collapsing around the ears of the National Party government in the 1980s, expenditure levels only twice exceeded 26% of GDP.
In this setting, it is worrying that in neither Ramaphosa’s “new dawn” State of the Nation Address nor in Wednesday’s “tough but hopeful” Budget was there an indication of anything like the compelling policy alternatives needed to achieve the level of growth required to tame the budget deficit or the debt-to-GDP level.
Furthermore, the VAT and fiscal drag measures will place an even heavier burden on households and consumers, depressing domestic spending, and thereby undermining any effort at economic recovery.
The inescapable implication is that the government believes it can spend more effectively than the private sector or households can.
What this means, in effect, is that ordinary people are paying a very high price for the misguided ideologies and poor policy decisions of their leaders.
Ramaphosa has done well over the past eight weeks in raising confidence about the future of South Africa. However, if he is not able to validate and reinforce that confidence with a much more compelling case for reform, it will be in vain.
It is our conviction that Ramaphosa Cabinet’s agenda for growth and restoring genuine popular and investor confidence must include:
The Budget may have done enough to stave off the risk of an imminent downgrade, but the reprieve is likely to be short-lived.
*Frans Cronje is a scenario planner and chief executive officer of the SA Institute of Race Relations (IRR), a liberal think tank that promotes political and economic freedom.
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