Last week, after a potentially runious allegation of sexual assault made headlines, Finance Minister Enoch Godongwana said he intends to continue executing his duties “by focusing on the critical tasks of revitalising our economy and protecting the fiscus”.
With about two months before his medium-term budget policy statement, usually tabled in late October, Godongwana is seized with some critical fiscal choices — including how to deal with Eskom’s onerous debt, an issue that has been flagged by President Cyril Ramaphosa in the state’s plan to arrest the energy crisis to unfetter the country’s hamstrung economy.
It remains to be seen whether the sexual assault complaint, which stems from an incident that is alleged to have happened while Godongwana and his wife were visiting the Kruger National Park earlier this month, will be the minister’s undoing.
After meeting police last week, Godongwana expressed his intention of carrying on as finance minister while the legal process unfolds.
He has maintained that he is innocent.
However, if the minister is charged with a crime, he will be faced with the prospect of having to act in accordance with ANC policy and step aside. If that turns out to be the case, Ramaphosa will have to appoint a new minister just over a year after Godongwana stepped into the position.
Godongwana’s appointment in August 2021, shortly after the July unrest forced the treasury to shell out more relief spending, was welcomed by the markets and ratings agencies. At the time, economists cited Godongwana’s political heft and the fact that he was a known entity to investors as a reason for his market-friendly reception.
Iron grip
The freshly-minted finance minister seemed to fall neatly into the recess left by his predecessor, Tito Mboweni, preserving his line in the sand on heavy-duty spending. In his first medium-term budget speech, Godongwana said there would be no bailouts for state-owned entities, which he noted had benefited from R290-billion in government spending since 2013.
Earlier this year, Godongwana delivered his maiden budget speech, which painted a rosier-than-usual picture of the country’s fiscal position.
At the time, the government had a very real prospect of bringing stability to the country’s public purse, which had been encumbered by freeloading parastatals for years before the Covid-19 pandemic clawed at it.
South Africa’s economic fate is somewhat altered since Godongwana’s February budget speech, which was delivered a day after Russia deployed troops into Ukraine — triggering a domino effect that sent oil and fuel prices soaring, dampening domestic consumer demand.
Russia’s assault on Ukraine extended the commodity boom initially induced by the global recovery from Covid-19. After the July unrest, the government used the better-than-expected revenue resulting from the boom’s first wave to fund the renewed R350 grant.
Since February 2022, coal prices have climbed, significantly bolstering South Africa’s trade account, which is averaging a surplus this year.
Flush with the cash brought in by commodities, the finance minister — whoever he or she is — will once again have to decide whether to use that revenue or to squirrel it away for whatever cold winters lay ahead.
Godongwana has kept a tight grip on the purse strings, based on the view that permanent expenditure should not be made using a temporary windfall. However, there are some big expenditure risks that the finance minister will have to weigh in the coming months.
Top of mind is the public sector wage bill, which the treasury has tried to bring to heel for some years now. Wage talks are currently deadlocked, with public sector unions demanding an increase that will keep up with elevated inflation. The current offer by the government is a 2% increase.
If the wage bill exceeds what the government has budgeted for, it will threaten the treasury’s plans to regain fiscal stability. With Russia’s war pushing inflation expectations upwards, this could end up being the case.
Crisis control
When the finance minister takes to parliament in two month, the medium-term budget will give more detail on the way forward for dealing with Eskom’s breathtaking R392.1-billion debt.
When he announced his plan to solve South Africa’s energy crisis last month, Ramaphosa noted that the national treasury is working to finalise a sustainable solution to Eskom’s debt. The minister of finance, the president said, will deal with this in October.
In the February budget, Godongwana made a provisional allocation of R43-billion to Eskom over the medium-term expenditure period. The allocation will only be confirmed once certain requirements have been met and will be reviewed in the 2022 medium-term budget policy statement.
The fiscal intervention in solving Eskom’s debt, Godongwana said at a budget press briefing, would be dependent on the power utility selling some of its assets.
The R43-billion would hardly dent Eskom’s total debt. Not completely off the table is the proposal to reduce Eskom’s debt through a special purpose finance vehicle funded by the Public Investment Corporation, the Development Bank of Southern Africa and the Industrial Development Corporation.
Another big expenditure question is municipalities, many of which are in a state of financial disarray. Municipalities may have to be bailed out because the government’s investment hopes hinge on functioning services.
Of the 257 municipalities, 117 are facing financial challenges. When municipalities are in distress, the treasury has to step in.
The president has made it clear on a number of occasions that the state is intent on mending its relationship with the private sector. Better municipalities and more investment in public infrastructure will play a big part in this.
The February budget review noted that over the next three years, the government will introduce additional measures to improve the delivery of public infrastructure and attract private capital. Public‐sector infrastructure spending over that period is estimated at R812.5-billion.
The government’s investment aspirations are part of its strategy to drive economic growth, which it has put a lot of stock in to solve the country’s unemployment and inequality problems.
Without considerable growth, and the jobs that are expected to come with it, the government may be forced to rethink, turning its nose up to demands for a basic income grant — which will likely remain a hotly contested issue in the lead up to March 2023, when the extended R350 grant is set to expire.
The February budget pointed out that policy discussions that relate to how a more permanent version of the R350 grant might be financed will receive attention in the medium-term budget policy statement.
With the national elections on the horizon, and tensions still simmering after July 2021’s unrest, many will be looking to the treasury for guidance on this politically perilous issue.
