challenging job. According to Business Leadership South Africa chief executive Busi Mavuso, South Africa’s newly appointed finance minister, Enoch Godongwana, is taking on one of the most demanding roles in the country. Mavuso stated that the task is extremely difficult given the sovereign’s rapidly deteriorating financial situation, which resulted in the loss of investment-grade ratings last year and poses a risk to the whole economy.
“A fiscal crisis, which would surely lead to a financial crisis and significant recession,” she added, “is a risk that firms must include into their outlook.”
“That diminishes confidence and sharply reduces investment appetite, which in turn reduces growth.
“As a result, the government cannot spend its way to growth – the impact on the sovereign balance sheet of spending at the current level of indebtedness damages confidence and can easily be a net negative for growth.”
Mavuso said that there is no alternative but to constrain spending so that the fiscal outlook improves. In choosing what to restrain, Treasury must make difficult trade-offs, she said.
“Consumption spending is the real problem – this has lower multiplier effects on the economy than investment.
“Investment must be central to our economic recovery thinking, as president Cyril Ramaphosa has repeatedly made clear. Public sector investment is a key part of the overall investment drive and should be protected. It is consumption expenditure that must be constrained.”
Structural reforms are also fundamental and have the potential to provide a stimulus for free, Mavuso said.
“The Operation Vulindlela project running between the presidency and National Treasury has been arguably the biggest confidence boost so far that the reforms often referred to by the president will become a reality.
“It will be important that Vulindlela gets the new minister’s firm and public backing, as it had from his predecessor.”