Finance minister Tito believes the spending commitments in the medium-term budget were enough to save SA from further ratings downgrades.
“We are of the view that there’s no need for further downgrades for SA at all. I think we have been punished enough - and during a pandemic, nogal,” he told journalists at a virtual media briefing organised after his speech in parliament on Wednesday.
In May, Moody’s Investors’ Service downgraded the country to junk status as the economy was being pummelled by the lockdown and coronavirus infection rates were increasing.
In April, Fitch Ratings downgraded SA to a credit outlook of BB from BB+, sending the country further into junk territory.
On Wednesday, however, Mboweni seemed unaware that he and his leadership team at treasury were meeting Fitch immediately after the press conference. Thinking the meeting was only on Friday, he had to be reminded by director-general Dondo Mogajane that it was the next meeting they were going to after addressing media.
The finance minister said they would not massage the budget numbers at the meeting with Fitch.
“We can’t hide the numbers we see before us from the ratings agencies. Ours is to engage in robust conversations and debate with them … the numbers are what they are. I’m not in a position to prejudge their decisions, but I don’t see any reasons they would want to downgrade us, in particular because we are pursuing an active scenario to control the situation, to close the mouth of the hippopotamus,” said Mboweni.
Treasury has promised investors and ratings agencies that it will implement structural reforms that are needed to set the country on a path to economic growth. The economic recovery plan unveiled by the president and this medium-term budget are the first step in meeting that commitment.
The government presented a mixed bag of caution and optimism in the medium-term budget policy statement - nicknamed the mini-budget - warning that unless rising spending and borrowings were curbed, the country would find itself unable to deliver services and pay debts.
In its review of the medium-term adjusted budget, the National Treasury said it was working to contain public spending, which has increased by 4.1% annually over the past decade. In its crosshairs is the public-sector wage bill - and it is asking civil servants to accept lower salary increases than agreed to in 2018, and to prepare for a three-year wage freeze.
The government is fighting it out in court with public-sector unions over its refusal to implement the final leg of a costly wage agreement signed in 2018.
The department of public service and administration is due to start talks with the unions on the next three-year wage agreement, but the government will not budge on increases that are above inflation. However, the unions that are bitterly opposing government’s U-turn on an existing wage agreement, are expected to put up a fight at the next round of negotiations.
The government wants to reduce the public sector wage bill by R310bn over the next four years, starting with a R36.5bn cut for 2020. It has targeted wage savings of R190bn in labour intensive sectors, such as teaching, policing and defence.
Mboweni said the government would also ask senior managers in national departments, provincial departments, municipalities - as well as executives and managers of state-owned entities, and other public representatives - to consider taking pay cuts in solidarity with public servants.
“We cannot expect our civil service to carry the burden of nation building alone,” he said.
Asked how he planned to convince public representatives to make the sacrifice, Mboweni said he would be willing to address the independent commission on the remuneration of public office bearers.
“I, if requested, will make a submission about why I think consideration should be given to the reduction in the compensation for public representatives going forward. The compensation that they are receiving is a pre-Covid compensation.
"The situation has changed, therefore we must change with the situation,” he said.
The state wants to shift spending from consumption to investment, in a bid to boost economic growth. It is also reducing allocations to defence, security matters and home affairs, decreasing transfers to provinces and municipalities, but increasing spending on economic development.
If it sticks to expenditure targets, borrowing requirements will decrease to R602bn in 2021/22, translating to a reduced budget deficit of 10.1%. It projects a further decrease in borrowings in 2023/24, which will bring the budget deficit to a more manageable 7.3% of GDP.
It projects a budget surplus in 2025/26.
It is also trying to stabilise debt, now at just under R4tn, but projected to reach R5.5tn in 2025/26.
Tax increases are also on the menu. The state will seek R5bn in tax increases in the 2021/22 financial year - the first of R40bn in tax hikes government will introduce over the next four years. But details will only be revealed at the tabling of the main budget in February.
