If the lively discussion and remarks posted online by attendees after a presentation by Tito Mboweni are any indication, the former finance minister and one-time governor of the South African Reserve Bank (Sarb) seems to have given those at the PSG Annual Conference a bit of confidence.
Without shying away from criticising those deserving it, the hard-hitting Mboweni reassured the financial industry that the current situation forces government and the Reserve Bank to be responsible and maintain stable monetary and fiscal policies.
“As far as monetary policy goes, the inflation targeting framework is still intact, despite political opposition,” says Mboweni, adding that the target is still to keep inflation between 3% and 6%.
“This calls for a steady rise in the repo rate locally due to higher global inflation and interest rates, the rise in energy prices, and the uncertainty resulting from the Ukraine/Russia situation.
“When the US Fed raises interest rates, the Reserve Bank will follow.
Our central bank – operating independently – understands the consequences of high inflation on the poor and the poorest of the poor, he says.
“The Reserve Bank is unlikely to be careless.”
Mboweni also indicates that there is little leeway for government to deviate from responsible fiscal policy, but warns that the growth in expenditure needs attention.
“The growth in public wages and the social wage is especially concerning … [and] the budget deficit of 5.7% and the debt to GDP ratio of 72% should both be lower.”
He sees little change on the revenue side. “Changes in tax policy [are] unlikely. Corporate tax relief reduced company tax rates by 1%, Vat will probably stay unchanged, and we can expect only the normal adjustments to personal income tax brackets,” according to the ex-minister.
Concerns … and Clover
Mboweni has serious concerns over general public policies and the state of municipalities: “The state of some provincial roads [is] concerning.”
He expands on this by drawing from an experience while serving as finance minister. “There is the small town of Lichtenburg, surrounded by farms. A lot of farms producing food.“One of the biggest manufacturers in the town was Clover, who announced that they [would] shut their factory due to disagreements with the municipality,” he says.
At issue was bad service delivery, deterioration of roads, and problems with water supply. High rates and taxes and overcharging for services were also quoted as reasons.
“We met with them and the municipality to prevent 300 job losses, 300 families which [would] suffer.
“It did not help – the factory moved to KwaZulu-Natal,” says Mboweni, adding that this experience highlights the need for municipalities to support business.
He actually started his presentation with an analysis of changes in the macro-political landscape in SA to illustrate how the ANC has lost support at the municipal level.
Waning support for the governing party at municipal level
|Local government elections|
Source: Figures presented by Tito Mboweni, PSG Annual Conference
“It is important to note the difference in support for the ANC on national level and on local government level.
“The ANC lost several metros in the recent elections – and control over budgets,” says Mboweni, attributing this to unsatisfactory service delivery.
Eskom’s fragile finances and its problems came under the spotlight too, but Mboweni notes big improvements in policies that have the potential to lead to improvement.
“There is growing private [sector] involvement which gives operators more scope to generate power and sell it to the national grid, such as municipalities and big corporates.
“This is a big mind shift. Can you image that the ANC would have said anything like this 10 years ago?” says Mboweni.
“But there is desperate need for [there to be] no policy confusion here. Unfortunately, at the moment, there seems to be a cacophony of confusion.”
Mboweni says talk about billions of dollars being available to transform energy generation in SA should not be taken seriously.
“Too much talk about nothing. We must accept that we are dependent on a mix of energy sources.”
Mboweni also warns about the skewed economic growth figures. “There is no reason to be happy with the forecast of 4.2% growth in GDP … the economy is back at 2017 levels,” he says, referring to the overall size of the economy.
“Conditions that are vital for higher growth are absent. We also have to deal with an uncertain global environment and the effect of a major macro-political shift in SA,” he says.
He singled out one big concern: “We need to shift away from spending on public wages and social spending, to investment on projects that will stimulate economic growth.”