Mid-Term Budget Policy Statement: Will Gordhan keep the economic and political wolves from the door?

Wednesday will be the epitome of the political surrealism that has gripped South Africa – when Finance Minister Pravin Gordhan will deliver a budget speech while facing charges of fraud. If he is guilty of the charges, then why should anyone believe what he states in that speech? If he is innocent, then the people have to ask how did these charges come about – and then what to do with those who cooked them up?

The Medium Term Budget Policy Statement, or Mini Budget, is usually delivered towards the end of October every year. It is an update of the previous Budget that was delivered in February and gives a hint of what may happen in the next national budget.

While the event has very little of interest to the ordinary person, it does mean a lot for economists and those who take an interest in the wider economy. The Mini Budget highlights government priorities over the next three years (called the Medium Term Expenditure Framework) and proposes division of revenue and major provincial and local government allocations.

The Medium Term Budget Policy Statement is an important part in government’s budgetary plans and that this so-called update is actually delivered is evidence that South Africa ranks among the top three countries in the world to have the most transparent budgetary process.

But don’t tempt fate as former finance minister Nhlanhla Nene did last year, when he described his Medium Term Budget Policy Statement as “boring”. It was during his speech that students (much to their own surprise as anyone else) managed to storm Parliament by breaking through police lines three times to deliver their protest against any university fee hikes and demand that there should be a no-fee regime.

The #FeesMustFall protests have not died away and remain a constant bugbear for Gordhan as he has pledged, along with his full-time boss and sometimes antagonist, President Jacob Zuma, to find a promised extra R16.3-billion to fund the universities over the next three years.

Gordhan is on record as saying the money will be found out of an already tight budget, but he must do so “without breaking the bank”, as he has told investors in recent roadshows.

Never mind breaking the bank. Gordhan and National Treasury have to keep both the economic and political wolves from the door.

In February Gordhan tabled a budget of R1.324-trillion and the SA Revenue Service managed to pull in R1.0699-trillion in taxes. A milestone for government’s taxman as it has never had to collect more than a trillion rand before. But the relationship between Gordhan and SARS chief Tom Moyane is not exactly chummy either.

“A billion dollars here, a billion dollars there, pretty soon you’re talking real money,” former US senator Everett Dirksen is reported to have once said.

Just where Gordhan and the National Treasury are to get those extra billions to fund things like the university subsidies, the preparation for the looming trillion-rand or more nuclear build programme, and the ever-sinking financial hole of SAA, while propping up delinquent municipalities and plugging the drain of money flowing out of excessive and corrupt practises of the tender system, remains to be seen.

He will also have to talk up economic growth to bring that ray of hope that could help stave off a ratings downgrade in December.

Economic growth is already approaching zero, although Gordhan is on record as saying that the economy could be “bottoming out”.

All of this is important to ensure that junk status rating is avoided and that is what Gordhan's hanging on to his job is all about and that is something the private sector trusts that he is able to do.

So far the markets are still pricing in a downgrade in December, though not as seriously as they were at the beginning of the year. Investment strategists still compare South Africa with other volatile countries such as Turkey.

The rand has remained quite buoyant, holding up well against the dollar as the US looks set to enter an interest rate rising environment. South African government bond yields are also still looking attractive to foreign funds despite the possibility of a downgrade.

All this means is that Gordhan’s strategy of boosting the country’s image with the international community has been mostly successful.

Private sector belief in him is so strong that about 60 chief executive officers took the highly unusual step of issuing a statement in support of him. Members of the African National Congress have come out in support of him and the Economic Freedom Fighters, who had no qualms in calling him a “neoliberal”, among the most scornful of phrases in their lexicon, are organising a march to support him on November 2 when he is expected to appear in court over the fraud charges.

Gordhan has become something of an exemplar for those who oppose the current administration within and outside the ANC. His fight against the ever encroaching Gupta family burst into the public domain with his request for a declaratory court order saying that the minister of finance has no powers to intervene as to why banks can decide not to do business with anyone.

Those 72 suspicious financial transactions worth R6.84-billion, as reported by the Financial Intelligence Centre, are among a possible number of figurative bombs that Gordhan appears to be prepared to set off in his fight to stave off a capture of the state.

Another bomb is that should he be replaced, then, whether he knows it or not, there are a number of top managers in the National Treasury who will march out and cause an exodus of expertise that would be very difficult if not impossible to replace in short period.

With all of these issues swirling around him, expect the embattled finance minister to present a simple, clear and succinct budget policy statement on Wednesday. In itself it probably won’t be controversial, but expect the controversy and the positioning around it to continue in the weeks to come to pick up in intensity. DM

Photo: South African Finance Minister Pravin Gordhan delivers the 2010 budget speech in parliament, Cape Town, South Africa 17 February 2010. EPA/NIC BOTHMA