GARDEN ROUTE NEWS - Nicky Weimar, chief economist at Nedbank, says although the new political leadership of President Cyril Ramaphosa is displaying a genuine desire to do the right things for the economy to move the country forward, the reality is that the effects of 10 years of decay and massive state plundering cannot be undone overnight.
This reality is displayed in the national budget.
Weimar spoke at a post-budget speech dinner held by Nedbank at Fancourt last Thursday. She said although national expenditure in the budget is going up dramatically this year, Treasury will be trying to cut back over the next two years, which is in line with its talk about right-sizing the civil service. The payout of R65-billion to Eskom over the next three years, however, creates a distortion in the figures.
"The budget is about Eskom and keeping the lights on. Without electricity, Ramaphosa cannot expect his international investment drive to succeed. Even though it is a struggle, they are moving in the right direction, but it will be progress at a slow rate."
Expenditure in the budget shows a sharp above inflation rate this year at 9,7% and then Treasury tries to rein it in in the next two years. Apart from Eskom's contribution to the high expenditure, the country's rising debt burden, which is estimated will climb to close to 59% of GDP by 2021/22, also reflects our fragile fiscal position, making debt service costs one of the fastest growing expenditure items in the budget.
"If one adds contingent liabilities to our debt burden, we are at 70% of GDP. So we are in a very perilous position. Government has a very delicate balancing act to play in the years ahead and they will have to prove that they can improve efficiency, improve delivery, get rid of corruption and the waste, and actually start to live up to the promises they have made over the past year. And prove that they can turn Eskom around. And if they can't, the easiest solution here for the good of the country is to open up electricity generation and distribution to competition. Give up and let the private sector do the work for you."
Nedbank's chief economist, Nicky Weimar, with guests at the post budget speech dinner. From left: Graeme Rob (Boardware), Fanie van Rooyen (Nedbank regional manager), Riaan Marais (Nedbank's business banking area manager) and Jannie Vermeulen (businessman from Beaufort West). Photos: Alida de Beer
She said the "wrong mixture" of spending is as a result of the Zuma years when all the money went into consumption expenditure and very little into capital expenditure. "Now that the money has run out, there is no money for capital expenditure either. So capital expenditure on all public sector infrastructure, including SOEs (state-owned enterprises), is going to fall. Ramaphosa's investment drive to get R1,2-trillion investment is going to be a real challenge.
"They have to get it from the private sector, so you have to do the things that the private sector wants to see. That might be our saving grace at the end of the day and might entice positive policy and structural change."
The annual average increase in expenditure in the major expenditure categories, over three years from 2018/2019 to 2021/2022, are as follows: Servicing debt 10,7%, economic affairs (mostly Eskom) 9,9%, education 7,7%, social protection 7,0%, health 6,9%, public order and safety 6%, environmental protection 5,6%, recreation and culture 5,5%, and defence 1,5%.
"Government is trying to effect cuts in trying to keep the lights on. It's reality coming home. We are going to face a couple of tough years and if we can do the right things in these difficult years, then I think we might have a real shot at it."
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