The Medium-Term Budget Policy Statement was business as usual

Stef Terblanche

The tabling of the 2010 Medium-Term Budget Policy Statement (MTBPS) on 27 October by Finance Minister Pravin Gordhan in Parliament delivered no real surprises, reflected the uncertain global economic environment, and was widely met with approval from business and political circles. But there were immediate signs that the days of high tension with organised labour were far from over. It was largely a matter of business as usual.

In a nutshell, the main features are that revenue is somewhat higher and expenditure slightly lower; priorities as expected are education, health and infrastructure; it reflects South Africa’s limited control over movements in the value of its currency; and it largely maintains the course that was started in the MTBPS of the previous year.

While it is clearly anchored in the stark realities of the tough domestic and global economic environments, it is not to say that the policy statement was boring. It would be interesting to observe how the details of some of the declared intentions play out in the months to come.

For one, there are the measures promised to deal with corruption and the scourge of tenderpreneurship.

There is the announcement of moves toward tougher controls over the financial sector – an issue that has been in the spotlight internationally ever since the financial crisis of 2008, and the battle to be led by the Reserve Bank to keep the rand competitive.

Business South Africa (BUSA) said in its response that the “statement has put a strong focus and emphasis on the robustness of the South African economy within the context of the prevailing financial market economic crisis.

“The South African economy is on the recovery path, much better than other developing and developed countries – with the exception of China, Brazil and India.

“The statement has anchored the role of emerging economies – a clear example that our path to recovery can emulate those economies,” it added.

BUSA further stated that it “welcomes the broad thrust of the MTBPS and shares the realistic assessment of the global and domestic economic outlook offered by the minister of Finance.

“While BUSA agrees that a slow but fragile economic recovery is taking place in South Africa, it is uncertain as to whether a 3% overall growth can still be achieved this year.

“The Mini-Budget speech also embodied a significant degree of continuity and predictability, which strengthens business confidence,” the organisation said.

Main challenges

Probably the main challenge ahead is going to be in the details of how the economic growth is to be translated from the (global) present jobless growth into growth that can deliver the target of five million jobs.

Coupled to this are the intentions to keep inflation in check, real interests rates to be lowered, the so-called green economy to play a strong role in job-creation efforts, and to phase in improved social security measures and a national health insurance scheme without disturbing the balance between revenue and government expenditure.

Although the statement builds on the new growth path announced after a special Cabinet meeting in November, most of the detail of that plan still needs to be filled in by the individual ministers responsible for various aspects of the plan.

In terms of identified top priorities, the projected picture for the next three years looks as follows:

Education remains the prime beneficiary, growing from a revised estimate of R173.2-billion to R215.8bn over the medium-term period, with an average annual growth of 7.6%;

The housing and community amenities budget will, however, grow faster by about 9.5% a year, from R97.4bn to R127.8bn;

This is followed by social protection, with an average growth of 9.1% a year, from R134.2bn to R174.2bn;

The hard-pressed defence budget will be increased by an average of 8.9% a year, from R35.7bn to R46.2bn;

Public order and safety (police, justice and prisons) is projected to grow from R86.8bn to R108.2bn – some 7.6% a year; and

Health spending will continue to account for a large slice of the cake, growing on average by 7.6% a year, from R101.9bn to R127.1bn over the period.

While it was announced that the government would relax exchange controls further, it was conceded it had limited options to weaken the rand in the face of increased capital inflows.

Gordhan cautioned that South Africa, as a small economy, could not fully offset the ravages of massive global capital movement and required greater productivity and competitiveness to cope with the rise of the rand.

It was clear that, for the time being, the status quo remains and the South African Reserve Bank has an inflation-targeting mandate within a broader framework. This includes growth and financial stability and the government’s concern over the rand’s strength. The way it addresses that is by reserve accumulation and exchange control relaxation.

Stef Terblanche is an independent political analyst and publisher of the weekly “Monday Briefing”