Economists urge caution as Tito Mboweni calls for re-evaluation of MTBPS

Minister of Finance Tito Mboweni delivers the 2019 mid-term budget speech. Picture: Phando Jikelo/African News Agency (ANA)

Cape Town - Finance Minister Tito Mboweni has questioned the role played by the Medium-Term Budget Policy Statement, saying its importance to the government needs to reviewed.

But economists warned on Saturday that the MTBPS had been able to show the government what worked and what did not work before the Budget in February.

The MTBPS was introduced by former president Nelson Mandela in 1997, to give the government direction in its future fiscal strategy. But Mboweni said it was now time to change this approach.

“I am convinced it’s time for us to re-evaluate this approach. Since 1997, when this process was put in place, we have not had a thorough review of its success or failure.” he said.

“We need to review (the MTBPS), as we are re-evaluating a number of things including the Public Finance Management Act, the Municipal Finance Management Act and the public procurement policy.”

But Dawie Roodt, chief economist at Efficient Group, and Azar Jammine, chief economist at Econometrix, believe the MTBPS plays an important role.

Roodt said the MTBPS had worked very well for the government.

“I don’t see the reason to change it. What the minister can do is change policies.

'"The minister cannot make changes to the tax policy in the MTBPS. Instead of having it as a report-back, let’s make policy changes,” he said.

Tax policy changes were introduced only in February, but could also be introduced in the MTBPS.

Jammine said there had been discussion on the role of the MTBPS since it was introduced.

“It does provide some continuity, without a doubt,” he said.

The MTBPS provided an indication of the direction the government was taking, and the government reached an earlier understanding of problems in the economy when the MTBPS was presented ahead of the Budget.

“The fact is that we know what the problems are by the time February comes. It will be useful information that the government can start working on,” said Jammine.

In the MTBPS, Mboweni noted some of the key challenges faced by the economy, including stagnant growth, escalating debt, the public sector wage bill, and the fiscal risk posed by the state-owned entities.

Government debt was expected to reach R4 trillion of GDP within the next three years.

This is seen as a serious problem for the government, and there were warnings from business that escalating debt could lead to the government requiring a bailout from the International Monetary Fund.

Mboweni warned that debt could not reach 70% of GDP. He said it should be below 30%, but the government’s debt to GDP ratio was spiralling, and would reach 70% of GDP by 2022.

President Cyril Ramaphosa has said the government will resist all attempts to go to the IMF because of the tough conditions attached to its bailouts.

National Treasury has also forecast low economic growth of 0.5% this year.

This was revised down from the 1.5% forecast when Mboweni presented his Budget in February.

Political Bureau