By Redge Nkosi
The appointment of Enoch Godongwana as finance minister in August last year was roundly welcomed by big business and the markets. His inaugural Medium-Term Budget Policy Statement delivered on November 11, 2021 was received with a cautious thumbs up by the markets, with the rand gaining ground against the dollar on the day.
As a show of confidence in the budget statement, the yield on the benchmark 10-year bond fell 20 basis points to 9.235 percent, indicating that the statement wasn’t “populist”. Even the equity markets, which are often less sensitive to such statements, the JSE All Share Index rose by a percentage point on the day.
All this should have come as very welcome news indeed for the president, the new minister, government, the ANC and alliance partners.
This non-populist budget statement so cheered by markets and right-wing economists had hard figures showing that the average South African is getting poorer and will continue, unemployment is skyrocketing and will not abate, both private and public investment are lower than at any time since 2005 and that the path of destroying the economy through austerity is continuing.
Careful economists have been warning against such cheers from right economists and the market as misplaced and that unless both the fiscal and monetary policy regimes change, we will all be happily sleepwalking into greater economic mess.
This February budget, perhaps to be cheered by the same group of people, will show that unemployment (narrow definition) will jump to about 38.3 percent, in 2026 which will be close to 50 percent if we consider all those unemployed. We will be told that in order to stabilise our finances and grow the economy we should continue on the destructive path of austerity, yet in the same vein we will be told that economic growth will falter to 1.5 percent in 2023 and remain stagnant going forward.
South Africa will be warned of a fiscal crisis if we do not borrow from the World Bank or if Parliament fails to approve the loan, and also if we do not fiscal consolidate, yet these are the very measures that send a country into a fiscal crisis if pursued religiously as we do. A deliberate catch-22?
We will not be spared either with placations like “South Africa has a deep and liquid capital market”, the macroeconomic consequences of which are little understood for poor nations like us. This phrase, misguidedly washed into our brains by the debt management programme of the International Monetary Fund (IMF) and the World Bank, has turned out to be an important instrument of enslavement for the macro-economically incompetent and naïve nations like South Africa.
The virtues of structural reforms, lauded by the president in his State of the Nation Address speech as the medicine for efficiency and sustainable long-term growth, will be repeated by the finance minister and cheered on by right-wing economists, yet even Treasury’s own sorry modelling shows they will be of little consequence to their purported usefulness both now and in the long term.
Remembering that structural reforms and austerity were the main and only forced recommendations by the troika (European Commission, European Central Bank and the IMF) in Greece, they turned Greece, an advanced country, into a developing country. Guess where South Africa is heading to.
Instead of solving Greece’s debt problem, as hoped, they elevated it. Greece, as the most structurally reformed country in Europe has little to proudly write about itself. High emigration, foreign ownership of its economy and a permanent deflection of failed economics.
The minister of finance is also likely to announce further unnecessary loans from the World Bank, which the bank is happy to see South Africa stay the course on the deleterious reforms and austerity. On the green economy, climate finance to be sourced from the same set of nations keen to own this economy, will be announced. We will be told we have no alternative as we have to meet the climate commitments.
As announced by the president last week, the poor will be placated by the extension of the R350 Social Relief of Distress Grant with warnings that the fiscus is constrained. This is despite alternative frameworks being suggested by careful economists.
On the whole, this will not be a growth budget. It will distribute money away from the poor and investment to the rich through a set of well thought out schemes like public-private partnerships and related market mechanisms. It will be dry and uninspiring, characterised by the dead economic dogma, group think and intellectual capture.
The cul-de-sac economics will once again rule the day and be cheered on. Parliament will end up approving the national collapse.
Redge Nkosi is an executive director of Firstsource Money and a founding executive board member of the London-based Monetary Reform International. @redgenkosi
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