SA facing “hard choices” if country is to avoid downgrade, debt trap, says Minerals Council
MININGMX / 04 NOVEMBER 2019 - 15.43 / DAVID MCKAY
THE South African government had to make “hard choices” in order to revive the economy and stabilise its national finances, said the Minerals Council South Africa.
The industry body’s comment follows a decision by credit rating agency Moody’s to downgrade its outlook on South Africa to negative from stable previously – an outcome that serves notice on government relative inaction so far.
Cyril Ramaphosa, president, South Africa
Moody’s kept South Africa’s rating at investment grade – at the lowest tier of Baa3 – but this has been construed as a holding measure whilst its waits on evidence that important reforms are in motion.
The change in outlook, while not unexpected, had “… effectively placed the country on notice that in order to preserve the investment grade the government will have to develop and implement a credible plan to stabilise the country’s finances and national debt levels,” the council said.
There was a “material risk” that the government would not succeed in tackling the deterioration of the country’s finances. “The Minerals Council believes that government must now make hard choices as it works to revive the economy and stabilise the national finances,” it said.
The Medium Term Budget Policy Statement delivered by finance minister, Tito Mboweni, last week forecast state debt levels to rise to 71.3% of GDP by 2022/23 and the budget deficit to average 6.2% in the coming three years. Mboweni also said the country was facing a ‘debt trap’ as it sought to control the finances of Eskom, the power utility, which has debt of R450bn which it can’t finance.
The Minerals Council said it was therefore all the more disappointing that government had not yet agreed to key structural reforms; nor had it empowered the National Treasury or other key departments to bring about rapid change. The council previously urged the government to embrace a set of policy reforms set down in a National Treasury paper in September which had, among a raft of proposals, suggested a different way of looking at the thorny industry issue of beneficiation.
Mboweni will have to find savings totalling R150bn, said BusinessLive. Given that there was little scope to increase taxation further, it was likely government would look at reducing the state wage bill, a development that could put it on a collision course with unions.
Bloomberg News said the state of South Africa’s national finances has put President Cyril Ramaphosa in a similar position to the economic predicaments faced by his predecessors, the late Nelson Mandela and Thabo Mbeki.
“If you look at the numbers on debt, the deficit, tax-to-GDP and growth, the environment faced by Ramaphosa and his administration shows strong similarities to that inherited by Mandela and Mbeki,” Frans Cronje, director of the Centre for Risk Analysis in Johannesburg, told Bloomberg News. Ramaphosa was confident, however. “We are still on our feet,” Bloomberg cited Ramaphosa to have told ‘lawmakers’ on October 31. “We will resolve these problems.”
Said the Council: “This is now a matter of urgency: Moody’s decision gives the country a short six-month window to demonstrate a substantial turn-around”.
“The mining industry has the potential to make a sustainable, positive contribution to growth and development, to the benefit of all its direct stakeholders and the country as a whole. But, to be able to do this it needs to be able to attract and keep investment, which in turn requires a stable, predictable and competitive investment environment,” it said.
Most recently, the Minerals Council called on the government to revisit its Carbon Tax plans which it said would cost the mining sector R5.5bn a year in its second phase of implementation. Government and the mining sector are also continuing to argue the ‘once-empowered, always empowered’ principle as interpreted in the redrafted Mining Charter.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER