South Africa’s renewed commitment to structural reforms will lead to more favorable assessments of its junk debt and help regain the confidence of supporters of the ruling party, Finance Minister Enoch Godongwana said.
Former trade unionist and key ally of President Cyril Ramaphosa, delivered his first midterm budget this week. In it, he pledged to accelerate structural reforms to boost economic growth and address the deterioration in public finances caused by a decade of overspending, mismanagement and state corruption.
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The government is targeting the success of the “concrete” reform by the time of the next Ramaphosa state of the nation address, Godongwana said. The president usually delivers the speech in mid-February.
“We are serious,” Godongwana, 64, said in an interview Thursday. “My challenge at this time is to push for us to develop a track record of implementation. That is what we have to do and once we do it, we will start to build credibility. ”
With South Africa’s credit ratings at the lowest levels since they were first assigned nearly three decades ago, the reform momentum could see Moody’s Investors Service and Fitch Ratings upgrade their outlook to stable from negative towards the end of next year. Godongwana said. The country’s sovereign risk premium, a measure of the higher cost investors pay to hold South Africa’s debt, will improve to 3.1% in 2023 from 3.5% this year, according to National Treasury estimates.
The implementation of reforms can be easier said than done.
The government has formally adopted five bills to boost economic growth and job creation since the ruling African National Congress won the first all-race elections in South Africa in 1994. The efforts of Godongwana’s predecessors to introduce policy changes They have been stalled by powerful vested interests, leaving the economy stuck in its longest downward cycle since World War II and more than a third of the workforce is unemployed.
Godongwana’s leadership may herald a change. He is the first finance minister to simultaneously chair the ANC’s economic transformation committee.
“From a political perspective, it gives me influence on both sides,” he said. “It has worked very well.”
The ANC’s worst electoral performance last week since the end of the white minority rule could deepen factionalism within the party or catalyze positive changes ahead of national elections scheduled for 2024. Demands from already opposed groups within the party Austerity can escalate, generating a potential debt crisis that would exacerbate poverty in one of the most unequal societies in the world.
In his budget, Godongwana resisted calls from civil society groups for increased social spending and for the introduction of a basic income subsidy, a policy that business organizations say is unaffordable. The Treasury will only reserve additional funds for social relief if public finances improve in February, he said.
With the so-called social wage, which comprises spending on health, education, housing, social protection, employment initiatives and local services, set at an average of 59.5% of interest-free spending amid significant fiscal constraints, Godongwana is shown Reluctant to commit to costly, more widespread wellness measures.
The government will also resist pressure to increase spending and regain voter support in the run-up to national elections, Godongwana said.
“We have increased social grants over the years to approximately 18 million people, but as we increase social grants, our election results are disappointing,” he said. Voters “are not interested in social subsidies, they want us to cover basic needs,” such as electricity and water supply, the minister said.
That stance is likely to please investors, who have come to know Godongwana as an opponent of the populist policies advocated by Ramaphosa’s predecessor, Jacob Zuma. He has been an advocate for market-friendly policies and warned against the ANC’s proposals to nationalize the central bank and change the constitution to facilitate land grabbing without compensation.
With 341 billion rand ($ 22.3 billion) available to spend over the next three years, the government intends to build pre-election support by investing in water, sanitation, energy and other infrastructure, he said. Godongwana.
“Our challenge will be the quality of that spending,” he said. “They are not going to be grants.”
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