Reshuffles, downgrades and South Africa’s public finance drama

The last week has been tumultuous for many South Africans, not least if you are an economist concerned with public finances and the associated political economy dynamics. I had predicted that the President would make another attempt at a finance ministry-targeted reshuffle some time from the end of March onwards. The basis for that prediction was the timing of Parliament’s recess period, as I discuss in greater detail in this article.

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Zapiro: “Shift happens”

The new Minister has been brought in on the back of the President’s (empty) rhetoric about ‘radical economic transformation’ to benefit the majority of poor, black South Africans, but he is known more for his snappy dressing than radicalism; if the FT is correct about his favoured brand, then two of his many ties would equate to the proposed new monthly minimum wage. The combination of supposedly radical rhetoric with personal profligacy is on its own questionable, but there are many more reasons to be concerned.

It was therefore not a great surprise to many analysts when S&P downgraded South Africa’s foreign currency sovereign debt rating to sub-investment grade (‘junk’). After the downgrade by S&P, which I had also expected having paid close attention to presentations at their one-day conference in Johannesburg only a couple of weeks earlier, I provided some commentary with an emphasis on the reasons for the downgrade and possible economics and public finance implications. One of these interviews, with Ayabonga Cawe at PowerFM, is available here. In the first interview I did, on KayaFM, I made a deliberate point of stating that we should not allow anyone to mystify the obvious: that Gordhan has been removed for similar reasons to Nene, implying ‘capture of the state’ (as per the Public Protector’s report). In that context, the new finance minister simply lacks credibility and any statements made about continuity and protecting the fiscus will likely be taken with a pinch of salt.

With the inconvenient oversight of Minister Gordhan removed, the South African Revenue Services announced its final revenue collection figures for 2016/17 in a chummy press conference with the new Minister. This attempted to paint a R30bn revenue undercollection (relative to the revenue forecast in the 2016 Budget) as a success, because it exceeded the 2017 Budget forecast (i.e. the one revised down by R30bn) by R0.0003bn… Unfortunately, many journalists reporting on that event were taken in by the claims of success. I had already dealt with much of this in an article in the Finance Mail. In fact, given concerns about SARS delaying refunds to inflate collection figures, and given inadequate data submitted to Parliament, I have submitted a formal request for more detailed data to SARS and hope to follow-up on that in due course.

Needless to say, the capture of the Finance Ministry makes Parliament’s oversight role even more critical. But as I have argued in some detail (here and here), and ventilated in my CCMA case, the Parliamentary Budget Office is neither equipped, nor inclined, to provide the robust analytical support expected of it under the Money Bills Act (2009). I will have more to say about this in due course.

After the decision by S&P, Fitch has now also downgraded South Africa’s foreign and local currency sovereign debt rating: setting the stage for more dramatic consequences if another agency also downgrades local currency debt to ‘junk’.

These are dangerous times for the South African fiscus, economy and society at large.

Presentation to Parliament’s finance committees

I am now affiliated to the new Public and Environmental Economics Research Centre (PEERC) at the University of Johannesburg, within which I intend to continue putting my public finance and public economics knowledge to good use.

As already noted, I recently published an article on the legislative process that guides the adoption of Budget proposals by Parliament.

And this week, along with my colleague Jugal Mahabir (who has experience at National Treasury and the Financial and Fiscal Commission), we made a short presentation to the finance committees on the fiscal framework and revenue proposals.

The time available (4-5 days between the tabling of the Budget and the submission of public comment) limits the depth and sophistication of the analysis, but with greater preparation this is something I hope to improve on at each successive iteration.

Parliament has the final say on the Budget

Ahead of the Minister of Finance’s Budget Speech tomorrow, I’ve just published a piece in The Conversation, explaining the core components of South Africa’s annual Budget and the fact that Parliament ultimately has the final say on each of these – subject to a public consultation process. The full process is guided by the Money Bills Amendment Procedure and Related Matters Act (2009), which I worked with extensively when I was at the Parliamentary Budget Office.

The conclusion of the article, that Parliament’s oversight may provide some reassurance in the current political context, is less comforting in light of an article published today which reveals that a vacancy has suddenly been created on the standing committee of finance. The last time that happened was when the then ANC whip of the committee, Des Van Rooyen, was notoriously made Minister of Finance for a weekend. It appears likely that Brian Molefe, former CEO of Eskom who is named dozens of times in the Public Protector’s ‘State of Capture’ Report, will be appointed to this vacancy – having been surreptitiously added to the ANC’s list of MPs. And this in turn may be a stepping stone to his appointment to cabinet in a last ditch attempt, by a faction close to the president, to take control of public finances for nefarious ends.