Infrastructure at heart of reprioritised, stimulus-aligned expenditure plan
Finance Minister Tito Mboweni has confirmed that expenditure worth R32.4-billion will be reprioritised over the coming three years in line with government’s recently released Economic Stimulus and Recovery Plan.
The figure appeared to fall short of the R50-billion reprioritisation target outlined by President Cyril Ramaphosa on September 21, when he released details of the recovery plan during a briefing held at the Union Buildings, in Pretoria. However, Mboweni said that, coupled with changes to grant structure and in-year allocations, the combination of reprioritisations would amount to more than R50-billion over the three years.
Faster-spending infrastructure programmes, together with a clothing and textiles production incentive and the Expanded Public Works Programme will absorb R15.9-billion of the reprioritised budget. The R16.5-billion balance will be allocated to various programmes, including the recapitalisation of the embattled South African Revenue Service.Mboweni provided details of the reprioritised expenditure plan in his maiden Medium-Term Budget Policy Statement (MTBPS) address to Parliament, in Cape Town, delivered only weeks after his appointment to the position of Finance Minister.
The former South African Reserve Bank governor was appointed in early October after the resignation of Nhlanhla Nene, who himself only returned to the role from which he was infamously dismissed by President Jacob Zuma at the beginning of 2018. Nene resigned following revelations at the Commission of Inquiry into State Capture that he had met with the controversial Gupta family on several occasions while he was either a Minister or Deputy Minister.Among the reprioritised infrastructure programmes is an allocation of R3.4-billion for school infrastructure and eradicating pit latrines. Funding for the sanitation projects will be reprioritised from existing school infrastructure budgets, but over the medium term, government, donors and private-sector companies will fund the projects and test new sanitation technologies.
The MTBPS states that increased investment in social and economic infrastructure will be a focus of economic recovery over the medium term, but also indicates that such investment will require an increased role for the private sector.As part of the stimulus package, a public-private infrastructure fund is being established within The Presidency, with the aim of attracting private and development-finance capital to public infrastructure projects.“We will develop innovative finance solutions that combine capital from the public and private sectors,” Mboweni said, while emphasising the value of partnerships with the private sector in addressing several backlogs, from water delivery to healthcare.Mboweni announced that R625-million had also been allocated to improving project preparation, the lack of which has been identified as a reason for project delays and cost overruns.Over the next three years, public infrastructure expenditure is estimated to be R855.2-billion, of which State-owned companies account for R370.2-billion and general government accounts for the remaining R485-billion, mainly in the form of conditional infrastructure grants.
BRINGING IN THE ARMY.
However, Mboweni also announced plans for immediate interventions where infrastructure was either failing, or had stalled as a result of corruption. He made specific reference to the Giyani Water Project, which he described as a “cesspool of corruption”.“It is clear that a new delivery and financing model is required to provide water services to communities,” he said, adding that Ramaphosa would be visiting Giyani to assess what should be done.Likewise, immediate interventions were planned for the water crisis that had arisen around the Vaal River System, with funds having been reprioritised to address the problem.“I have asked the President and the Minister of Defence for the military to assist with engineering and other expertise to resolve the crisis in the Vaal River System. I am happy to report that approval has been granted. The generals in charge have already started working on solutions.”
FISCAL CONSTRAINTS
Mboweni stressed that the reprioritisations would not lead to a breaching of the expenditure ceiling and had been made with an awareness of the serious fiscal constraints confronting government. Tax revenue estimates in the MTBPS have been revised down by R27.4-billion in 2018/19, R24.7-billion in 2019/20 and R33-billion in 2020/21 when compared with figures released in the February Budget. The declines were attributed mainly to higher-than-expected Value Added Tax refunds.In addition, the 2018 growth forecast has been lowered to 0.7% from 1.5% in February, reflecting the economy’s slump into a recession during the first half of the year.The new growth forecast is more or less in line with the International Monetary Fund’s October projection of 0.8%, which represented a downward revision from the 1.5% estimate released in April.
The National Treasury expects growth to recover to 2.3% by 2021, which remains well below the 5.4% goal contained in the National Development Plan, which aims to halve unemployment and eliminate absolute poverty by 2030.Mboweni also reported slippage in the consolidated Budget deficit, which is now estimated to come in at 4% of gross domestic product (GDP) in 2018/19, compared with a figure of 3.6% forecast in February. For 2018/19, expenditure of R1.7-trillion will be more than R200-billion higher than expected revenues of R1.46-billion. The deficit is forecast to widen to 4.2% of GDP in 2019/20 and only return to 4% 2021/22.
Gross loan debt is expected to increase from R2.8-trillion, or 55.8% of GDP, in 2018/19 to R3.7-trillion, or 58.5% of GDP in 2021/22, mainly to finance the deficit. Debt is projected to stabilise at 59.6% of GDP in 2023/24.Mboweni described a debt-to-GDP ratio of 50% as the “sweet spot” and said government would need to have an honest conversation with the ratings agencies about how it planned to stabilise and reduce the ratio. He also stressed that the stimulus package had to be built on two macroeconomic preconditions: a sustainable fiscal position and stable inflation. “My job is to make the fiscus stronger,” he said, indicating that as part of that process he aimed to provide the cover necessary to ensure that the National Treasury was safeguarded, as far as feasible, from political interference.
