The Minerals Council South Africa has expressed its concerns after the Supplementary Budget Speech by Finance Minister Tito Mboweni.
The Minerals Council released a statement in which it expressed that the budget speech touched on the critical economic issues facing the country, expressed the right perspectives on the management of the country’s deepening fiscal crisis. The Council also found that the speech was lacking in terms of details on the steps that have to be taken to rescue South Africa’s economy.
While the budget speech echoed similar warnings sounded by governments the world over, it is important to remember that the economy was already showing significant signs of strain. Sub-investment grade ratings, growing public sector wage bills and shrinking tax collection were all evident before the COVID-19 crisis. COVID has not brought on our economic woes, it has deepened them. The South African economy is expected to contract by 7.2% in 2020, the largest contraction in nearly 90 years.
The Council also realised that the county’s biggest burden is its debt, and as the minister noted, the downturn will add more. What is staggering is that South Africa spends as much on servicing its debt as it does on its health care.
“South Africa is at a fork in the road and faces a slip to a sovereign debt crisis unless tough choices are made”Rodger Baxter, Minerals Council South Africa CEO
Early projections are that gross national debt will be close to R4 trillion, or 81.8% of GDP fiscal year from 65.6% projected in February. What’s important is that without external support, this debt will almost entirely consume all the country’s annual domestic savings. The minister plans to have debt stabilising at 87% of GDP.
This is why the government has little choice but to turn to new sources of funding. What is concerning is the degree to which South Africa is borrowing internationally. Treasury had previously indicated that it would be going to the international market for about R95 billion. In the budget document, government clarified that it intends to borrow about US$7 billion from international finance institutions to support the pandemic response. At today’s exchange rate that is about R125 billion.
“South Africa is at a fork in the road and faces a slip to a sovereign debt crisis unless tough choices are made. To take the fork to the high road South Africa requires significant structural economic and institutional reforms to steady the ship, and create the space for much faster growth,” commented Roger Baxter, Minerals Council CEO. He added that a significant increase in investment would be required to achieve this. “This in turn will require a significant improvement in the competitiveness of the economy, which will be driven by proper structural and institutional reforms.”
The task to rescue the economy is gargantuan and will require the kinds of fundamental changes outlined by Minister Mboweni. The Council hopes government, and the rest of the country will have the will to do what is needed. “We commend Minister Mboweni for taking some of the tough first steps in this journey to allow South Africa to take the fork to the high road,” Baxter concluded.