Nene promises financial prudence as all eyes turn to the MTBPS

Finance Minister Nhlanhla Nene gave assurances on Thursday that government was committed to fiscal prudence, despite additional spending pressures on the budget and promises of a major stimulus package to boost the economy.

Nene was addressing the Moody’s Sub-Saharan Africa Summit, but his comments hinted at what may lie in store in the upcoming medium-term budget policy statement (MTBPS), which will reveal adjustments to the national budget, in October.

This year’s MTBPS is being carefully watched as it is expected to reveal how the state will cope with new pressures on the budget such as an above-inflation wage increase for public sector workers. The settlement is expected to add over R30-billion to government spending in the coming three years.

The economic climate has also deteriorated in recent months on both the local and global fronts. South Africa’s economy has slipped into a technical recession, it emerged last week.

Since the delivery of a very tough budget in February global economic conditions have also deteriorated — as rumblings of a global trade war intensify and the crisis in countries such as Turkey and Argentina have spread to other emerging markets including South Africa further weakening the currency.

Nene said that the depreciation of the rand and an increase in government bond yields mean that more resources will be required to service debt.

Despite these pressures, Nene said that the cabinet has agreed “that fiscal sustainability must remain the focus of government’s efforts in public finance management.”

“This should be a statement that makes clear government’s intention to pursue a prudent fiscal policy that stabilises the debt-to-GDP ratio over the long term,” he said.

Similarly, President Cyril Ramaphosa would be announcing an economic stimulus package in due course. But, said Nene, the president is clear that government’s participation in this programme will be “through existing budget resources and will be focused on unlocking efficiencies within the public sector”.

The proposed stimulus plan, however, is expected to cost well over R40-billion, resulting in scepticism that it can be done within the current budget. 

READ MORE: Talk of state spending rings hollow

Notwithstanding the public service wage agreement, the government was committed to the compensation ceilings presented in the 2018 medium-term expenditure framework said Nene and several options were under consideration to address the additional cost of the settlement.

These include an updated employee-initiated severance package and early retirement to encourage qualifying public servants to exit the public service.

Nene said that although the lower economic growth had the potential to undermine revenue targets “without disclosing any details” tax collections this year are performing “reasonably well despite the adverse economic environment”.

But a key focus for Nene was the importance of shifting government spending towards investment and away from consumption spending.

It was critical the country started “changing the conversation about our expenditure”, said Nene.

“Because a 50% or 60% [debt to GDP ratio] is not such a bad figure if the composition of expenditure is such that the bulk of it is an investment rather than in consumption.”

Along with the reforms to state-owned companies, currently underway, and the commission of inquiry aimed at improving governance at the South African Revenue Service, Nene said that the government was “redoubling efforts to address the main issue inhibiting growth: weak investment”.

The state was building a pipeline of investment opportunities and infrastructure projects and had identified 64 projects through the Budget Facility for Infrastructure, located within the Treasury. So far 38 projects had been subjected to rigorous financial and technical evaluation for possible investment.

Moody’s watching closely

Lucie Villa, a vice president and senior credit officer for the sovereign risk group at Moody’s said that the fact that the agency’s outlook for South Africa was stable indicated that there “is little chance of a rating action”.

Moody’s is the only credit rating agency that still retains South Africa’s sovereign debt rating above junk.

But what was announced in the MTBPS would be “critical” to its outlook for the country.

The rating agency was already factoring in some fiscal adjustments to its outlook but “we just need to know what are the details” Villa said.

Issues that would be watched closely included things like tax revenues and the wage bill, she added.

Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

Workers fight job-creation ‘mess’

Former Ekurhuleni workers argued in court that a programme promising to equip them with skills simply acted as a labour broker for the municipality

Court dissolves local municipality

Landmark judgment paves the way for South Africans to use legal system to hold councils responsible

Mabuza’s ‘distant relative’ scored big

Eskom’s woes are often because of boiler problems at its power plants. R50-billion has been set aside to fix them, but some of the contracts are going to questionable entities

ANC faction gunning for Gordhan

The ambush will take place at an NEC meeting about Eskom. But the real target is Cyril Ramaphosa

Press Releases

New-style star accretion bursts dazzle astronomers

Associate Professor James O Chibueze and Dr SP van den Heever are part of an international team of astronomers studying the G358-MM1 high-mass protostar.

2020 risk outlook: Use GRC to build resilience

GRC activities can be used profitably to develop an integrated risk picture and response, says ContinuitySA.

MTN voted best mobile network

An independent report found MTN to be the best mobile network in SA in the fourth quarter of 2019.

Is your tertiary institution is accredited?

Rosebank College is an educational brand of The Independent Institute of Education, which is registered with the Department of Higher Education and Training.

Is your tertiary institution accredited?

Rosebank College is an educational brand of The Independent Institute of Education, which is registered with the Department of Higher Education and Training.

VUT chancellor, Dr Xolani Mkhwanazi, dies

The university conferred the degree of Doctor of Science Honoris Causa on Dr Xolani Mkhwanazi for his outstanding leadership contributions to maths and science education development.

Innovate4AMR now in second year

SA's Team pill-Alert aims to tackle antimicrobial resistance by implementing their strategic intervention that ensures patients comply with treatment.

Medical students present solution in Geneva

Kapil Narain and Mohamed Hoosen Suleman were selected to present their strategic intervention to tackle antimicrobial resistance to an international panel of experts.