South Africa is heading Argentina’s way on the fiscal front if “serious measures” are not taken “to close the mouth of the hippopotamus” – effectively addressing the widening gap between revenue and expenditure.
That’s the stark warning from Finance Minister Tito Mboweni, ahead of his Medium-Term Budget Speech set for October 21 (update: now 28 October). He was speaking during a Stellenbosch University webinar marking the centenary of the institution’s economics department on Friday.
Mboweni warned that a “fiscal crisis is on its way by 2024/25” if serious action is not taken by government to rein in spending and bring down its debt.
“What bothers me most is what I refer to as the hippopotamus’s mouth … where revenue is declining while expenditure is going up. [We] have to close this mouth of the hippo,” he said, noting that tax revenue for the year is expected to contract by over R300 billion.
“We are headed for a fiscal crisis. Non-residents are selling South African bonds at an alarming rate,” he added.
“If we head towards a fiscal crisis, then we have a sovereign crisis, and then a banking crisis … We can no longer live beyond our means,” said Mboweni.
He stressed that tough decisions lay ahead for South Africa, otherwise the country would “head Argentina’s way” in a few years.
He also warned that his upcoming medium-term budget “will not be a popular one” in the context of “dealing with things like SAA and other state-owned enterprises”.
Mboweni made no mention of the government’s much-anticipated economic recovery plan, which will be aimed at boosting the economy post the Covid-19 economic fallout.
President Cyril Ramaphosa said last weekend that the plan is set to be released soon and reiterated that infrastructure investment will be a key cog.
It however remains unclear whether some details of the plan will be revealed during Mboweni’s mini budget speech on October 21 or Ramaphosa will keep the plans under wraps until an investment conference expected to be hosted by government in November.