Dominating business news this week was Finance Minister Tito Mboweni’s Medium Term Budget Policy Statement, and Public Enterprises Minister Pravin Gordhan’s Special Paper on Eskom.
Medium Term Budget Policy Statement
In his Medium Term Policy Budget Statement this week Finance minister Tito Mboweni warned members of parliament that unless things are done differently, the economy will remain under severe stress.
Mboweni says debt will most likely exceed 70% of the GDP in the next three years. He says the economy is in need of a serious kick start
“There are a number of risks to the fiscal framework which this government has to confront head-on; number one the debt to GDP ratio is beginning to reach unsustainable levels. Once the debt to GDP level breaches the 60% level we should be concerned. Ideally our debt to GDP levels should be about 30%. They say the US has a debt to GDP ratio which is higher but I say they have a reserve currency.”
Mboweni also revised down the country’s economic outlook.
Treasury now expects the economy to grow at 0.5% in 2019 compared to 1.5% that was predicted in the February 2019 budget.
Growth is projected to slowly pick up to 1.7% in 2022.
Mboweni has blamed weaker investment, lower business activity and declining global growth as some of the reasons behind the latest poor growth outlook.
Government also wants to reduce expenditure by R240 billion over the next few years.
Mboweni says they will start engaging with unions to bring down the wage bill.
“For every R100 that we receive in taxes goes to compensation to employees in the public sector. The public sector wage bill has shot up dramatically higher and it’s very clear that we need to have a conversation with the public sector workers on how on these difficult circumstances we can moderate the wage bill. But I’m not saying it’s equivalent to cutting the jobs in the civil service. But it’s the level of wages that’s an issue.”
Meanwhile analysts say government must do more to deal with the escalating wage bill in the public sector.
Salaries for civil servants have grown by about 40% over the past decade.
Government wants to achieve a R50 billion annual saving over the next three years to reduce the growing budget shortfall that is over R50 billion.
The SABC’s Tshepo Mongoai says:”Finance Minister Tito Mboweni announced plans to engage with labour unions to bring down the current high wage bill. Currently the wage bill accounts for 46% of tax revenue.”
Goldman Sachs’ Colleen Coleman says: “The big ticket item would be the public sector wage bill which is out of control and it’s going to be important for the leadership to show that they are prepared to take the pain and broadly the workers … SEOs of which Eskom is the elephant in the room.”
Special Paper on Eskom
Public Enterprises Minister Pravin Gordhan says the proposed business model for Eskom as outlined in the special paper, has a clear implementation plan.
Gordhan presented the Special Paper on Eskom in Pretoria this week.
The paper outlined the separation of Eskom into three entities: generation, transmission and distribution.
The restructuring plan for Eskom was first announced by President Cyril Ramaphosa during his state of the nation address earlier this year.
He says the paper also makes proposals on how governance will be restored and how procurement will be handled going forward.
“So we’ve got a plan for the next two months and for the next year so there’s a clear implementation plan. Implementation machinery will be created, change must happen on the ground.”
Gordhan also confirmed that a new Eskom CEO will be announced next week, adding that changes to the Eskom board can also be expected.