Five finance ministers and a fall from secure fiscus to near-junk status

2018-02-16 05:45 - Jaco Leuvennink
trevor manuel
Former finance minister Trevor Manuel.

Cape Town - From a country with one of the longest serving, most respected ministers of finance in the world and a solid fiscal position with a rare budget surplus, to four finance ministers in less than three years and a downgrade to near-junk status. That is what has happened over the past ten years to South Africa’s management of its state finances.

Two of the four finance ministers since 2015 - Nhlanhla Nene (18 months at the helm in 2014 and 2015) and Pravin Gordhan (14 months from 2015 to 2017) - can't be held directly responsible for the mounting pressures, stagnating economy and diminishing fiscal moving space.

However, they were part of a government that through its political approach and attitude (among other things self-enrichment, inefficiency and poor implementation of policies) nullified or at least actively undermined all their efforts to stabilise fiscal strength and progress.

One can almost talk about a destructive political thought process and an environment of sowing suspicion.

'Weekend special'

South Africa also made history - infamously - by having three different finance ministers in about four days over a weekend in December 2015. First, Nene was removed because of dubious reasons, followed by his successor Des van Rooyen because of a huge public outcry. This led to Van Rooyen being mocked as the “weekend wonder” and the "two-minute noodle" by government critics.

Gordhan, brought back about three days later to calm the markets and stabilise things, himself lasted only until the end of March last year when he was unceremoniously removed and succeeded by Malusi Gigaba, who will deliver his first National Budget on Wednesday next week.

Looking back over the past 25 years of South Africa's fiscal fortunes, an interesting picture emerges. Having started on a difficult note and with budget deficits at high levels (7.4% of GDP in 1992 and over 4% when he arrived on the scene in 1996), Trevor Manuel had after a stint of 13 years built up an almost spotless record.

South Africans attending his annual Budget Speeches in the first years of the new millennium became used to receiving different sorts of fruit (one year even a small indigenous tree) as symbols of the fruit the country was reaping for prudent and healthy management of state finances, and the accompanying economic growth.

debt

In 2007 an unprecedented (especially among developing countries) budget surplus of 1% of GDP was achieved with state debt down to around 27% of GDP (estimated in October last year to have grown to 57% of GDP in the coming fiscal year).

Manuel allowed these figures to slip to -6.1% of GDP (budget balance) and 31.3% of GDP (state debt) in 2009, primarily to cushion SA against the international financial crisis of 2008/2009, but probably also because of fear of political embarrassment that could be attached to a surplus budget in a developing country.

Many South Africans still had to enjoy the fruits of growth and one newspaper described the budget situation as “almost comic for a developing country which is far from having responded to a host of huge problems like poverty, unemployment and Aids”.

Backlash against Treasury

The political backlash against the National Treasury’s (and Gordhan's) prudency, and efforts over the past couple of years to gain political control over the Treasury, emanate from these last years of Manuel.

Gordhan (2010 to 2014) and subsequently Nene did what they could to stabilise things, but the spectacularly absurd events of December 2015 finally upset the applecart and started the process towards downgrading of South Africa's financial status.

In particular, Gordhan after his comeback had to constantly try to calm things down and reassure the business sector, markets and investors as well as ordinary less well-off South Africans.

The budgets presented by Nene and Gordhan from 2015 to last year were described by analysts as “cautious, workmanlike, no big surprises, moderate changes, a balancing act between political imperatives (transformation) and growth and other fiscal realities”. The words “tough choices” and “crossroads” started to appear.

Last year Gordhan eloquently put it as follows: “Our growth challenge is intertwined with our transformation imperative. We need to transform in order to grow, we need to grow in order to transform. Without transformation, growth will reinforce inequality; without growth, transformation will be distorted by patronage. But an austerity burden will not be placed on our people.”

Since Gordhan's departure and Gigaba's appointment in March last year, the situation has deteriorated significantly, judging from last year's mini budget. Gigaba admitted that “we are on a slow growth road and will have to look at new revenue sources".

Gigaba's credibility problem

Apart from the fiscal and growth challenges, Gigaba faces a credibility and trust problem. He was part of the Zuma circle for a long time and started the almost fatal restructuring process at state-owned enterprises when he was minister of public enterprises. As minister of home affairs after that, he made some bad visa decisions with huge economic repercussions.

Gigaba must have learned a lot about the bigger economic world since March last year. But he - and with him all South Africans - are facing tougher decisions than even Gordhan and Nene before him. Prudent and conservative fiscal measures are once being tightened internationally, and the country has to tighten up its fiscal position for better long-term growth, job creation and prosperity - the sooner the better.

Zuma is gone and Gigaba is probably at the moment just a pawn in a bigger political pool. But it is highly unlikely, for reasons of stability, that he will be replaced before Wednesday's budget. The ministerial budget committee and Treasury officials though have probably played a bigger role in what we’ll see in Wednesday’s documents.

Let's hope a sound base is laid from which to operate.  

budget


* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER