LIFE AFTER MOODY'S DOWNGRADE

Mboweni’s ‘Hallelujah’ moment as Ramaphosa green-lights structural reform 

By Ed Stoddard 29 March 2020
Caption
Minister of finance Tito Mboweni speaks to journalists at a media briefing prior to delivering his budget speech in parliament on 26 February 2020 in Cape Town, South Africa. (Photo: Leila Dougan)

Finance Minister Tito Mboweni had a ‘Hallelujah’ moment when President Cyril Ramaphosa told him that the Moody’s downgrade was the trigger to pursue structural reforms. It’s probably a bit late now and in the wake of the Covid-19 economic meltdown it is hard to see how they can be pursued. 

In the wake of the twin body blows of the Moody’s downgrade and the Covid-19 lockdown/economic meltdown, Finance Minister Tito Mboweni and Reserve Bank Governor Lesetja Kganyago had a virtual conference call with the media late on Sunday, 29 March. Mboweni tried to strike a jovial tone at times but he sounded stressed.

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One thing that emerged from the call was that Mboweni now has political space from the president to pursue the structural reforms which most economists have said for years are needed to kickstart investment, economic growth and job creation.

“When I spoke to the president before Moody’s announced their decision he said to me, ‘We now need to move more boldly on the structural reforms programme.’ I said, ‘Hallelujah’. I’ve been preaching that agenda for a long time,” Mboweni said.

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Mboweni has indeed been preaching the gospel of “structural reform” for some time, which would include cutting the wage bill of an inefficient public service which has swelled to serve the purposes of patronage. With Ramaphosa he probably was preaching to the converted, but it remains to be seen if other factions in the ANC have seen the light.

Mboweni later elaborated that a unit would be established in the Finance Ministry – but not the National Treasury – called “Vulindlela”, Zulu for “Lead the way,” also the title of a popular song by the late Brenda Fassie. 

According to Mboweni, “The president said, ‘let’s do things for ourselves. We need to lead the way.’ And I was encouraged by that. And I will be creating a unit in the Ministry of Finance, not the National Treasury, called the Vulindlela unit who are going to look throughout the government system and the private sector about whether we have proceeded in pushing these structural reforms. So, they will become the front soldiers of structural reforms in the South African economy. And I know that we are going to succeed.” 

That begs another question, which Mboweni did not address directly: Leading the way to what exactly? Any forecasts for the size of the contraction of South Africa’s economy at this point are thumb-sucks, but 10% is hardly implausible, and that is going to bring with it a lot of extra hardship on a society already crippled by sky-high rates of unemployment and shocking income disparities. 

Austerity measures such as slashing the public sector wage bill, or structural reforms such as making it easier to fire employees, are going to be a tough sell when this is all said and done. The mounting costs of the lost Zuma years and the dithering since have now risen past a possible tipping point.

Still, better late than never, as they say.

Mboweni also addressed the issue of potentially going to the International Monetary Fund (IMF) or World Bank. He stressed it would be to support the health sector, so the typical balance of payments crisis which generally sparks an IMF bailout does not seem to be on the cards at the moment.

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“The focus now is on health. If I approach the IMF or the World Bank it will be if we run out of finance for health interventions. That’s all… As of today, I do not need IMF or World Bank facilities. But I am keeping them in my back pocket just in case I need them,” he said.

He also said that the World Bank would probably be the “first port of call” and the amount would only become apparent when the need arises.

As to Mboweni’s “Hallelujah” moment, it is perhaps appropriate to quote the late Canadian singer/songwriter Leonard Cohen on that score, who in his haunting song of that name sang:

“Your faith was strong but you needed proof.” 

Mboweni says he has faith, but the government must provide proof that it is serious about structural reforms. And they may be harder than ever to implement now. BM

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