Road map to economic revival calls for closer cooperation with private sector

30 June 2020 - 06:30
By Edward Kagiso Molefe and Nico Keyser
Minister of finance Tito Mboweni's supplementary budget speech was to set how  the government would spend R500bn to support the economy following the outbreak of the coronavirus. / GCIS /Kopano Tlape
Minister of finance Tito Mboweni's supplementary budget speech was to set how the government would spend R500bn to support the economy following the outbreak of the coronavirus. / GCIS /Kopano Tlape

The 2020 supplementary budget comes at a time when the ongoing Covid-19 pandemic is causing widespread disruption in the world's economy and continues to affect it negatively.

Even though the precise consequences remain uncertain, economists and policy makers agree it will leave the world overwrought with the uncertainties of the future. According to the International Monetary Fund, the world economy is expected to contract sharply by 5.2% this year, due to the huge lockdown.

The SA economy is expected to contract by 7.2% in 2020, and according to the minister of finance, Tito Mboweni, this is the largest contraction in almost 90 years. The SA government finds itself in an unfortunate and restricted fiscal position. Mboweni does not have much room to move within his emergency budget and calls for a pragmatic approach, reprioritisation of expenditure, and austerity measures within the public sector and its state-owned enterprises (SOEs).

The minister further highlighted that, for the first time in history, all stakeholders - including the private sector, labour, communities and the central bank - participated in responding to the storm.

This has proven the validity of the long-sung gospel that by working together, we can do more. R500bn of government's Covid-19 economic support package was directed t at the problem. Against the ongoing measures to address the pandemic in SA, the supplementary budget stressed several key aspects:

The first burning issue was the mounting debt-to-GDP ratio, which is envisaged to reach 80.5% in this fiscal year. SA continues to experience contracting revenue and is relying extensively on loans from international sources, since savings is a nonstarter.

The minister has also called for zero-based budgeting as one of the strategies in building a bridge to recovery, and to close the mouth of the "hippopotamus", which is eating our children's inheritance. This is a big step in the right direction; it will make all role players in government understand the economic crisis we are facing.

The other positive part was the prioritisation of infrastructure development. The government has already considered almost 177 projects that will assist in boosting the economy and curtailing unemployment.

It needs to further stimulate its partnership with the private sector to ensure more infrastructure development which will also ensure jobs for the unskilled labour force, which makes up the largest part of our unemployment.

Despite the envisaged revenue adjustment to R1.12-trillion, the country is to continue spending. An additional R21bn is allocated for Covid-19-related healthcare R12.6bn to front-line services.

An additional R11bn is set aside towards improved water and sanitation, and R6.1bn for youth employment. However, the effectiveness of this is sorely dependent on the ability of our government apparatus to spend the money.

The only worrying issue the minister did not dwell on was the public sector wage bill, which remains a challenge. Nearly half of the consolidated revenue will go towards the compensation of public service employees.

This continues to put much pressure on service delivery and is pushing government in the direction of borrowing. On the other hand, it is still under pressure to implement the 2020 salary adjustments.

However, the question remains why it is not considering the same process as the private sector or finding an alternative way of setting salaries at an appropriate, affordable, and fair level. This could save money to focus on other areas that require financing.

What is evident is that SA should continue opening the economy to revive sectors hit hard by the lockdown. Allowing trade, business, and markets to function would provide the ultimate boost to a struggling economy.

*Molefe is a lecturer and Dr Keyser is head of department: economics and finance at the University of the Free State