Author and political analyst R W Johnson has warned of government’s ever-widening financial deficit and says that the country is facing a financial ‘showdown’ in the coming months.
Speaking in a webinar for Holborn Assets, Johnson said he expects a debt crisis in 2021 – possibly extending into 2022.
“South Africa has had a generation of ANC rule, but the ANC has failed to govern trustworthily,” he said. “We have seen six years of falling income and most state-owned enterprises are in a state of bankruptcy.”
This is impacting investor comfort, creating a focus among individuals on how to externalise assets, he said.
Johnson said that the government, business leaders, and ANC politicians have presented a plethora plans, but there has been no clear commitment from the president as of yet.
“We are at the moment waiting for several important things to happen. The most important thing is that (finance minister) Tito Mboweni is set to present his medium-term financial budget in October which is in effect going to be a sort of updated budget,” he said.
“Everyone can see that this is going to be a sort of ‘showdown’ and already (Higher Education minister) Blade Nzimande – who speaks for the SACP and Cosatu – has opposed the taking of the Covid-19 R4.3 billion IMF loan.”
This has effectively set up Mboweni and Reserve Bank governor Lesetya Kganyago as the ‘enemy’, Johnson said.
He added that Mboweni effectively has a target on his back because of his proposed R230 billion cut to public spending, which can only be achieved through very large cuts in the salary bill of public servants.
Mboweni has warned that South Africa’s debt levels will exceed 100% of gross domestic product by 2024-25 and rise to almost 114% by 2028-29.
In a June presentation. the finance minister said that gross government debt will climb to 80.5% of gross domestic product in this fiscal year, compared with a projection of 65.6% in February. The trajectory presented shows no sign of stabilising by 2028-29.
Where will the money come from?
Johnson said that government will also have to reconcile with some of its policy proposals as it increasingly runs out of money. He highlighted some of the policies which have previously been mooted, including:
- A state bank
- Amending pension fund legislation so that te the sate may access them at favourable rates;
- Reconverting thousands of government buildings to green energy.
- Capital controls to try and stop capital from leaving the country;
- Prescribed assets;
- The National Health Insurance;
- A state pharmaceutical company;
- A basic income grant.
“The interesting thing about this is that there is no mention at all about where the money will come from,” said Johnson.
He said that it is clear that the government is looking for money and that there is between R8-R9 trillion currently sitting in the country’s pension funds.
“All these plans are frankly nonsense in the absence of any money or plan. It is absolutely clear that they are short of money. The deficit this year is set to be R761 billion and to come up with plans for further enormous spending is frankly ridiculous.”