Elections and the fight to control the national purse

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National purse control is a less-discussed 2024 general election issue. The current fiscal year’s government spending budget is R2.37 trillion.

Naturally, political parties want to control the national and provincial budgets.

Public procurement accounts for 12% of GDP and almost R1 trillion annually.

Public procurement has great potential for economic transformation and inclusive growth. Political parties naturally want involvement in this enormous transaction.

Political control over Africa’s economic powerhouse

The International Monetary Fund (IMF) reported in April 2024 that South Africa’s economy has surpassed all others in Africa in terms of size.

South Africa is the largest economy in Africa, according to the International Monetary Fund’s study. Its GDP is $373 billion, which is more than R7 trillion.

Assuming all goes according to plan, South Africa will hold on until at least 2027. Consequently, the political parties vying for power in the next general election are well aware of the enormous influence that an electoral triumph would bring to the continent’s economic superpower.

South Africa accounts for 13.28% of Africa’s GDP, which was estimated by the International Monetary Fund (IMF) at $2.81 trillion in April 2024.

Fears of fiscal prudence going off the rails

Some radical conservatives believe a left-leaning party will abandon budgetary responsibility.

National Treasury’s 2023 Medium Term Budget Policy Statement (MTBPS) estimates debt service costs will reach more than R1 trillion over the next three years but the Economic Freedom Fighters’ (EFF) election platform contains many spending plans that ignore this reality.

Fiscal year 2023/24 debt service cost R382.2 billion.  The daily cost of debt servicing in South Africa is about R1 billion.

Every political party that wants to govern must be fiscally responsible and take fiscal policy seriously.

Some economists predict that government debt might reach 90% of GDP by the end of the decade and 80% within two years if spending cannot be controlled with revenue. The rising cost of debt will limit government service delivery.

The fears of the National Treasury under EFF leadership

The proposal that Floyd Shivhambu, of the Economic Freedom Fighters (EFF), may assume the position of Finance Minister in the event of a coalition between the EFF and the ANC has been heavily criticized by numerous center-right political groups, social critics, and economists.

Some are claiming this will create a “looting highway”. These concerns are followed by claims that the markets will be shocked and lead to the rand deprecation as well as negative rating by credit ratings agencies. There is a sentiment that if the ANC and the EFF form a coalition, that will lead to economic doomsday.

Sceptics of the ANC-EFF coalition are certain that the markets will react negatively should such a coalition take place.  The sceptics anticipate massive capital outflows as a result. In my opinion, the market’s key concerns appear to be certainty in fiscal policy, monetary policy, and the future direction of economic policy, rather than ideological allegiance.

Fiscal and Monetary Policy Direction

At the core of addressing the economic challenges faced by South Africa lies the capacity to formulate and execute efficacious economic policies that stimulate annual economic expansion equivalent to the 5% target set by the National Development Plan.

The EFF asserts that economic independence for the black majority can be attained via a state-directed industrialization program, the nationalization of mines, and the expropriation of land without compensation.

Critics of the EFF’s economic stance argue that the party’s conception of economic freedom is incongruous with the prevailing international definition of the term, which upholds principles such as respect for market dynamics, individual autonomy, and property rights.

Advocates of conservative neoliberal economics are concerned that under the EFF’s leadership of the National Treasury, fiscal prudence and consolidation will be disregarded, while state intervention will be intensified.

There are apprehensions that the EFF may engage in political intervention in the operations of the Reserve Bank, thereby obstructing monetary policy and precipitating a significant depreciation of the rand.