South African Institute of Race Relations (SAIRR) Chief Economist Ian Cruickshanks has described the Budget Speech as very short term.
According to Cruickshanks , the budget offers short term solutions for long term problems.
Finance Minister Tito Mboweni tabled the Budget Speech in Parliament on Wednesday afternoon.
In the video below, Minister of Finance Tito Mboweni delivers the 2020 Budget Speech:
The Minister’s budget comes at a difficult time, with an economic growth forecast expected to average 1 % for the next three years. “I think that it is a very short term budget, we are just looking at papering over the cracks and borrowing enough to keep ourselves operating without saying that we are making fundamental changes so that revenue will grow at a faster rate than expenditure. This is just to say that we have a short term negative problem on the balance, patch that, how about changing the whole outlook. There is nothing to say that they are going to cut the huge cost of a bloated public sector workforce,” says Cruickshanks.
Eskom struggling to meet South Africa’s power demand
The Budget Speech also comes at a time when State Owned Enterprises are struggling to keep afloat.
Mboweni has acknowledged that electricity problems will hold back economic growth.
Eskom has announced that there is possibility of increased load shedding over the next 18 months.
Mboweni says government will do whatever it takes to deal with challenges facing the power utility.
Two-hundred and thirty billion rands has been allocated over ten years for the restructuring of the electricity sector.
Cruickshanks has, however, warned that dealing with problems facing Eskom will be expensive.
“The ideas sound plausible but to bring back one of the older power stations now, that is got to be refurbished, that is going to be an expensive operation. I think what they are simply saying is admitting that there were huge mistakes that have been made in the whole design, building and operation of Kusile and Medupi.”
“SAA does not work”
The Minister has expressed optimism about developments at the South African Airways (SAA).
The airline is currently under business rescue. “It is the very sincere hope of many that this intervention will lead to a sustainable airline that is not a burden to the fiscus.”
Cruickshanks is not so optimistic. ” SAA does not work, it is not something that has not been done anywhere else, take Switzerland, they closed Swiss Air for three years or five years and said we are not operating it, because we cannot make money out of it. We cannot build revenue to exceed expenditure and we will simply close the service. That is what we should be doing but I see no sign of that and that is worrying. “
Will the Budget Speech prevent a downgrade?
Questions have been raised as to whether the speech will boost South Africa’s credit rating or not. Moody’s is the only ratings agency which still has South Africa’s rating above junk status.
Implementation of what has been put on paper, Cruickshanks outlines, will be key to keeping the current credit rating status.
“They will say the idea is good, let’s see it being put into action. I think what Moody’s has to say is important, it is vitally important that we get back access to funding and access to funding at a lower cost. I think that that is important. A lot depends on how the national growth figure works out, as far as we are concerned, we are looking at GDP for the fourth quarter last year is between – 0.5 and 0% , that is negative, if that happens to be correct , we condemn ourselves to a downgrade and that we have been warned about and if we have it that would mean that we are in recession again. And if that is so, we have got to say, a downgrade, higher cost of funding, more difficult, fewer capitalists prepared to risk their capital. That is risk appetite decline even further and that is tragedy.”
The graphic below shows other areas where money will spent:
— SABC News Online (@SABCNewsOnline) February 26, 2020