The announcement by Fitch Ratings that it has downgraded South Africa from BB+ to BB, with a negative outlook, underscores the urgent need for Tito Mboweni to table a new, emergency budget immediately after the lockdown is over.
Fitch makes it clear that the reason for the downgrade is “a lack of a clear path towards government debt stabilisation” and a failure to follow through on plans to cut the cost of the public wage bill. All of these pressures are exacerbated by the economic cost of Covid-19. This underscores that the economic crisis we face is a result of bad economic policy, no fundamental reform, profligate public spending, and corruption. All of this has left our economy weak and unable to respond in this time of global shock.
It is now clear that none of the assumptions which underpin the budget Minister Mboweni tabled in February are still reliable. There is still no clear progress on an economic reform agenda, despite renewed verbal commitments. Tax revenue and economic growth are collapsing, and the rand has weakened to nearly R20 to the dollar.
For example, the budget tabled in February assumes a 5.5% growth in VAT revenue this year. Given the devastation the economy is now suffering, that target is impossible.
It would undermine the credibility of the Treasury to continue with this budget. It should be discarded and a new budget tabled immediately after the lockdown. This new budget should be the first small step on what will be a long journey to regaining our investment grade credit rating.
But there will be no hope of regaining our investment grade rating without fundamental economic policy reform, most urgently in ending the Eskom monopoly on power generation. There can be little growth in an economic climate that advocates state control, regardless of the evidence.
- hold a firm line against trade unions who are intent on reversing the decision to cut at least R160 billion from the state wage bill;
- reduce the number of public sector managers who do not deliver front-line services;
- support the DA’s proposed Fiscal Responsibility Bill, which holds the key to reducing national debt and debt service costs;
- free South Africans from Eskom’s death spiral by opening the energy market to IPPs;
- disinvest from zombie state owned enterprises and immediately put a stop to further bailouts; and
- introduce far ranging reforms to ease up the labour regime and end the centralised power of bargaining councils.