The Medium-Term Budget Policy Statement, due to be delivered in October, has to do two things – enable the government to work effectively and deliver appropriate fiscal policy, Business Leadership South Africa (BLSA) CEO Busi Mavuso says in her latest weekly newsletter.

“These are not necessarily the same thing – effective government means both spending oversight and allocating budgets to those parts of the public sector that can best spend it to achieve our desired outcomes.

“Fiscal policy, on the other hand, is tied into wider economic objectives, particularly how we grow the economy,” she explains.  

Mavuso says the country has been through periods of slippage, such as the State capture years which put considerable pressure on the National Treasury, resulting in a period of spiralling debt and extremely poor expenditure that delivered low value for money.

“Numerous bailouts of corrupt and inefficient State-owned enterprises were the most obvious pit into which public resources were poured, but there was just as much wasteful expenditure in the rest of government where everything from local municipalities to entire provinces were failing to get audits signed off or follow legal procurement procedures,” she avers.

Mavuso emphasises that poor value for money from public expenditure is a serious problem for all South Africans, but, for business, fiscal policy can seem like the overriding concern.

“Just a few years ago, there was growing alarm at the rate at which our debt burden was growing. We lost our investment-grade rating by the last of the “big three” credit rating agencies at the beginning of the Covid epidemic, which meant the cost of capital for all of South Africa, including all businesses, increased.

“As debt levels continued growing, concern mounted that a fiscal crisis was approaching, one in which the State would collapse under the weight of its debts, leaving it with few options other than a bailout from the International Monetary Fund, effectively ceding sovereignty,” she explains.

She commends Treasury for, over the past two years, shifting the probabilities on this outcome.

“It promised it would get expenditure under control, and it has largely delivered, helping to build trust. Thanks to a temporary spike in key commodity prices like platinum, Treasury also received a windfall in revenue collection that has helped it deliver faster on promises to start chipping away at the overall debt burden.

“This helps business confidence – businesses no longer must factor in the risk of systemic collapse when making investment decisions,” Mavuso notes. 

However, she points out that a critical part of fiscal policy is to maximise the impact on economic growth of the State’s spending.

“It may seem the case that all spending is positive for the economy – but that is not true. At the worst points of the State’s debt spiral, business became so worried that, for each additional rand spent by government, more than a rand was not spent by business. So increased State spending was harming the economy,” she explains.

Therefore, she emphasises the importance of what the money is spent on, with government to ensure infrastructure works.

“Spending on infrastructure expands economic capacity, making it possible to grow employment and production. I, like many other business leaders, have been frustrated that during a period of high commodity prices, we have been exporting less from our ports simply because there is [insufficient] rail and port capacity to support it.

“The revenue windfall to the State could have been much larger had we invested appropriately at the right time,” she avers.

Mavuso says the balance of spending shifted towards consumption rather than investment throughout State capture, but, positively, this is now moving the other way, with infrastructure spending set to grow by 30%.