No more Mr Nice Guy - Moody's is watching, warns deputy finance minister
Deputy finance minister David Masondo has stressed the need for reforms ahead of the next Budget speech as well as the next Moody's review, with particular focus on the public sector wage bill and bailouts for SOEs.
Addressing JP Morgan's South Africa Opportunities Conference on Monday morning at the Vineyard Hotel in Cape Town, Masondo said the wage bill constituted 35% of the total government expenditure, and 46% of the gross tax revenue.
"We are working as we speak with our social and political partners to achieve savings in the wage bill, and in this regard we also have to look at wage-freezes starting with us public office bearers, top managers, executives at all levels of the state if we are to seriously tackle our looming fiscal crisis," he said.
Echoing the recent sentiments of various Members of Parliament, as well as Finance Minister Tito Mboweni, Masondo also called for an end to bailouts of state-owned enterprises.
He called for a move away from "the recent trend of the fiscal budget increasingly becoming a bailout fund for state-owned companies", adding that this had become "unaffordable".
Instead, he said, "[w]e have to bring in private-sector participation; and ensure that SOEs that remain in public hands become commercially viable; and rationalise some of them."
"I am sure that investors in the room today would agree with me that if management kept asking for equity injections every financial year you would reassess your investment decision in that particular company. There is no reason for government to behave differently unless there is a clear market failure that needs to be addressed by a SOE," he added.
Treasury was looking ahead to 2020 and working on tightening belts with a view to satisfying rating agencies, he said.
"National Treasury is alive to the great anticipation for the 2020 Budget Speech where we are expected to outline details around fiscal consolidation measures particularly relating to Eskom and the Wage Bill. Relevant government departments will be working very hard in the coming weeks to meet these expectations where possible."
Government would welcome "all support" to move forward, he added.
Noting that rating agency Moody's had recently changed the country's sovereign credit rating outlook from stable to negative – and that S&P had shortly afterward cut the outlook of the nation's debt to negative – he said: "Downside risks to our 'investment grade' credit rating are significant.
"A ratings downgrade will make things substantially worse by raising the cost of borrowing for government, SOEs and this will spill-over to private enterprises and eventually all borrowings across the economy."
Masondo argued that a downgrade would increase borrowing costs, causing declining investment, as well as higher interest rates and bank charges for consumers.
Banks would also cut back on lending and investments, he said.
"All this will slow down the real economy."
This would create a "negative feedback loop" and "vicious business cycle", putting more pressure on government's future credit rating, he noted.