CAPE TOWN – The Minerals Council South Africa on Wednesday said it believed Finance Minister Tito Mboweni has taken important steps to address South Africa’s economic crisis, building on the direction from President Cyril Ramaphosa in his State of the Nation Address two weeks ago.
“But it is just the beginning,” said Minerals Council CE Roger Baxter. He made remarks after Mboweni tabled the country's 2020 budget in Parliament on Wednesday.
Bexter said at the forefront of these steps is the Minister’s commitment to achieve more than R50 billion a year in reduced spending, largely through trimming the state wage bill, removing funds from government departments that haven’t used them and by cutting various forms of wasteful expenditure.
That education, health and police spending will not be targeted in this exercise, provides a vision that critical social and security services will not be compromised.
However, he said, the Budget deficit to gross domestic product (GDP) ratio of 6.8% in 2020/21 remains high, and the reduction of the deficit to 5.7% over three years is in the right direction but too slow.
“Importantly, the primary deficit narrows from 2.6% of GDP in 2020/21 to 1.1% of GDP in 2022/23. Ultimately South Africa has to achieve a primary surplus (where non-interest revenue exceeds expenditure) in order to stabilise the deficit and debt levels.
“It is critical that public sector debt service costs are reduced so that they are no longer a major encumbrance on society. So further hard work is required on managing expenditure growth downwards.
"South Africa needs to reach a point in no more than five years where the country is no longer having to increase its borrowings in order to service its interest payments. Still, it is recognised that the Budget maps out a reduction in real non-interest spending,” he said.
The Council said it appreciated that this effort to address the deficit and the debt mountain is being done without the introduction of significant new taxes or raised tax rates.
The fiscus cannot afford more billions being poured into South African Airways, an institution that has no unique strategic value to South Africa, said the statement.
And any future subsidies to Eskom absolutely needed to be conditional upon that organisation restructuring itself so that it ceases to be a drain on the fiscus and the economy.
The Minerals Council expects Eskom to do much more work on reducing its internal cost structure in order to be more competitive, Baxter said.
“As we know, Eskom’s near monopoly on South Africa’s electricity supply has taken a huge toll on the economy. Industry estimated that power cuts caused losses of about 0.1 per cent of GDP in the fourth quarter of 2019.
"The Council believes this number is far higher in terms of its impact on mining production and on confidence. Without urgent intervention, the impact of supply interventions will cut deeper in 2020.”
He also said that the Council hoped the budget would be deemed adequate to save South Africa from losing its last investment grade rating, from Moody’s.