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Zuma's populist faction has given up on pacifying ratings agencies - Silke

Nov 13 2017 14:49
Liesl Peyper

Cape Town – Analyst and political parties reacted with shock following confirmation that National Treasury stalwart Michael Sachs has resigned.

IN THIS ARTICLE:

  • Political analyst Daniel Silke said it shows that President Jacob Zuma and his political faction have given up on pacifying the ratings agencies.
  • Politicians from the Democratic Alliance, the African National Congress and the Inkatha Freedom Party also reacted with concern regarding the resignation of Sachs. (See below for their full comment).

Sachs, deputy director general who headed up the budget office, threw in the towel last week, reportedly because the Presidency has interfered with the budget process.

“South Africa stands on the precipice of a crisis of legitimacy as governance increasingly becomes more populist - and desperate - in the run-up to the December conference,” Silke told Fin24 on Monday.

“The populist faction seem to therefore have given up on pacifying the ratings agencies," he said. "The advance of pure populism to secure political ends without due consideration to the medium or longer term effect on the economy is now becoming increasingly entrenched.

"To be fiscally irresponsible at this time will quickly come home to bite the country and the poor that any educational subsidy seeks to benefit,” Silke said.

Silke was of the view that such an announcement would be “perfectly in line” with the dismissal of former finance minister Pravin Gordhan at the end of March, which was immediately followed by a ratings downgrade by Standard & Poor’s (S&P) and Fitch.

S&P has the country's local credit rating one notch above junk status and the foreign credit at junk; Moody's has both ratings one notch above junk; and Fitch has both local and foreign ratings at junk.

If S&P and Moody's - which are announcing their latest review on November 24 - downgrade their outstanding ratings to junk status, the economy would see a severe downturn and the rand would depreciate considerably, economists have warned.

Reports are rife that Zuma is about to release a plan to reallocate R40bn from within the constrained budget to fund a free-education policy for families who earn less than R350 000.

This despite Zuma's release on Monday of the Heher Report, which revealed that the country can't afford a free education plan.

The proposal to fund the R40bn plan comes amid changes to the budget process, where National Treasury’s role in managing the fiscal framework has taken a back seat to the Presidential Fiscal Committee.

“Clearly the timing of the Sachs resignation at a time of substantial rumour suggesting a possible R40bn additional expenditure on free education indicates deep division and consternation as the independence of National Treasury comes under attack,” said Silke.

Fee-free education as a 'positive' legacy 

Silke said in the final months of Zuma's term of office, the president is looking to cement a positive legacy away from the negativity of graft and corruption for which his term will be remembered.

“It is also possible that President Zuma's preferred successor, Nkosazana Dlamini-Zuma (former African Union commission chairperson who has held a number of cabinet positions), can derive some political benefit from this to also offset the brand damage that her name (and policy) association with Jacob Zuma brings.”

Dlamini-Zuma can indeed run with a “free” education policy a month before the elective conference, which will be a much-needed boost to her campaign, Silke adds.

“Indeed, the additional provision of R40bn – if indeed announced – comes at the worst possible time for the domestic economy and the ratings agencies, who are about to present yet another (credit ratings) review.

"An additional R40bn on top of the increasing budget shortfall of R50bn and the heightened debt to GDP burdens indicates that President Zuma and his faction are more likely to use populism to secure votes - largely at the expense of the domestic economy.”

Sachs' departure a 'blow' to National Treasury

Democratic Alliance spokesperson on finance David Maynier said in a statement that the shock resignation of Sachs, a “veteran budget office head”, is a huge blow to National Treasury.

“This confirms our fears that decision-making on budget priorities, and the budget itself, have now been centralised under President Jacob Zuma.

“The Minister of Planning, Monitoring and Evaluation, Jeff Radebe, tried to reassure us that there was ‘nothing to fear’ from the new budget prioritisation framework during his briefing following the medium-term budget policy statement on 26 October 2017 in Parliament.

“But now we have a Presidential Fiscal Committee making decisions about the budget at the expense of the Minister’s Committee on the Budget, a Mandate Paper, setting out budget priorities at the expense of National Treasury and 'rogue elements', such a Morris Masutha, who are reportedly peddling a R40bn budget-busting plan for higher education, with the support of President Jacob Zuma.”

Maynier said one can only hope that there is no “snowball effect” and that other senior officials at the apex of the system hold steady and do not resign from National Treasury.

Yunus Carrim (ANC), chairperson of the standing committee on finance, said it’s “deeply regretful” that somebody with the skill, work ethic and political sophistication of Sachs, with his considerable experience of the ANC-led movement, has resigned.

“Whatever his differences with other officials and maybe politicians, he should have stayed. Hopefully, he will find a place elsewhere in the public sector.”

Mkhuleko Hlengwa, Inkatha Freedom Party (IFP) spokesperson on finance, said it is evident that the "brutal brunt of state capture" is weighing heavily on principled officials, such as Sachs, forcing them to resign. 

"We also cannot ignore the allegations of political bullying at National Treasury where the current political leadership is purging officials to replace them with lackays who will succumb to the whims of state capture and corruption," Hlengwa said. 

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national treasury  |  jacob zuma  |  michael sachs  |  budget

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