WORLDVIEW: So, your country’s debt is headed for junk – budget

The budget has landed with a thump and South Africans are still grappling with what it all means. One thing's for sure though – it means a debt downgrade for South Africa..Juggling act.In one sense, Mboweni was faced with an impossible triangle – much like the classical economical impossible trinity..Every year at budget time, Mboweni juggles three balls. He needs to keep revenue collection high; he needs to keep spending low; and he needs to keep borrowing under control..___STEADY_PAYWALL___.This year, most people expected him to "drop" the revenue ball – to increase taxes to the point where revenues might actually cover spending, enabling the country to keep its debt under a semblance of control and thus, to keep global investors happy..But instead, Mboweni and his team decided – perhaps rightly – that any further tax increases would serve only to further sink SA's already anaemic growth rate. Since Treasury seems to have no power to cut spending and faced with an impossible trinity, they decided to drop the debt ball instead.."Debt," said Mboweni in his budget speech, "is not projected to stabilise over the medium-term.".The time has come, he implied, for us all to accept that SA is not an investment-grade debt bet. In March, Moody's will finally downgrade us, and SA debt will be junk..So, your country is facing a debt downgrade.Many people are a little shell-shocked at Treasury's decision to go for junk. They shouldn't be. It's been a long time coming – South Africa has been dancing around the downgrade for a couple of years, pretending that debt will stabilise in the face of overwhelming evidence that it won't..And I am on record as saying we may as well embrace the junk. Note, I am not saying it won't be painful. It doubtless will. A debt downgrade will hurt. There will be a currency devaluation, asset prices will fall. Life will be difficult, especially for the poor. It is not a prospect to be relished..But here's the thing – it may be South Africa's last hope. We all know what needs to be done. Ramaphosa and Mboweni have said it a hundred times. SA needs to lock up the looters and take back the money they stole. We need to chop jobs at Eskom and get its debt mess cleaned up. We need to cut government spending, probably by reducing our above-average public sector wage bill. We need sensible, evidence-based policy that will encourage investment in key sectors like mining while protecting workers and the environment. We need to stop messing around with economic policies that have failed everywhere they've been tried..There's not a huge amount of mystery around some of the big changes that are needed in SA. What there is, however, is a complete absence of political will to make them happen..Ramaphosa appears paralysed by a fear of upsetting the ANC's Zuma loyalists/left wing and organised labour. Half his cadres are in a lather about losing their opportunities to cream funds off the top, and many of them are worried about being fitted for their own orange onesies. As long as the ANC can fumble along without shaking the boat, it will..A debt crisis, however, removes the option of going as we have been going. If the South African government can't keep borrowing in global capital markets, it simply cannot keep spending. It will have no choice but to call in the International Monetary Fund (IMF) as the lender of last resort, and the IMF will not be gentle. And that just may provide the government with the political cover it needs to make the changes it knows we need..South Africa's problem is not economic. Unlike some poor countries, SA doesn't lack natural resources, sophisticated markets, technological know-how, or workers. SA's problems are political. By pursuing a blow-up budget, Mboweni may – intentionally or not – have lit a fuse under the current political swamp we find ourselves in. The resulting explosion will be painful and dangerous. But it could also be better than slowly sinking.

WORLDVIEW: So, your country’s debt is headed for junk – budget

Juggling act

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