Finance Minister Enoch Godongwana will deliver a revised Budget speech this week, and it is crucial that this strikes the right balance of fiscal prudence, business organisation Business Leadership South Africa CEO Busi Mavuso writes in her weekly newsletter.

“National Treasury has stayed the course in ensuring the budget does not worsen our debt position and I expect the budget tabled this week will maintain that. But in the absence of increased value-added tax, which has been abandoned from the first budget, we must see restraint on spending,” she emphasises.

Mavuso calls for “an honest reckoning” on how productive distinct parts of government are, particularly outside of the main service delivery lines.

“We have had, over the last 30 years, a succession of administrations, each of which has set up new public institutions and programmes. They do not all deliver value for money. Like we must in the private sector, when a budget is constrained, we must reduce spending in those areas that create the least value,” she explains.

Mavuso acknowledges that it is challenging for politicians to assess value for money in an objective way, as there are different interest groups that will be affected

“For the budget, there is a technical question that must be answered: what expenditure cuts will have the least damage on growth or service delivery? We must identify those purely on the evidence and follow through to reduce expenditure. This is a task best done by technocrats, and our National Treasury is the institution with the right capabilities to do it,” Mavuso avers.  

Mavuso is keen for Godongwana to announce credible steps to reduce expenditure, backed by political support. She posits that this will be positively received by investors, showing that the country can politically manage its finances appropriately.

“Eventually, we will see a return to an investment-grade credit rating, which will reduce the cost of borrowing not only for the government but the whole economy. And with lower costs of borrowing, we will get more investment and more economic growth,” she postulates.

S&P Global Ratings this weekend reaffirmed its positive outlook for the country’s credit rating.

“S&P sees potential upside that would lead it to increase our credit rating if an improving track record of effective reforms resulted in the strengthening of economic growth and reduced government debt and contingent liabilities.

“On the other hand, it notes the downside risk is if ongoing economic and governance reforms do not progress, resulting in a deterioration in economic growth or a higher-than-expected fiscal deficit and interest burden,” Mavuso points out.

She mentions a challenge for the budget as the growth outlook deteriorating from February when it was first tabled, meaning there is now less revenue in the form of tax collection, and this, therefore, underscores the importance of bolstering growth.

Mavuso says the imperativeness of this growth was clear at a business-government partnership meeting that was held with the President and several government Ministers last week.

“We have now agreed to accelerate reforms by introducing several “sprint” approaches to getting things done. We have also increased the frequency of future engagements for the partnership from quarterly to every six weeks,” she informs.