PFM blog

No rock and a hard place for Nene

24 February 2015

When he tables his 2015 Budget, Minister Nhlanhla Nene will know that there are many things he can be grateful for. One of them being that he has a great team of public officials at the National Treasury. A team that has consistently provided coherent policy advice, worked tirelessly to ensure an inclusive budget process, and sought political and technical buy-in for their fiscal choices. This is a team whose nucleus has remained in the Treasury since the appointment of South Africa's first black finance minister – Trevor Manuel. From what I have observed, Nene leads and complements the Treasury team in a way that will ensure consistency, and provide the necessary reassurance that the public purse is well looked after.

The second thing Nene should be grateful for is that he has a four-letter surname, and not the ten lettered one of the Greek finance minister – Varoufakis. Unlike Varoufakis, Nene is not caught between a rock and a hard place when he tables the 2015 Budget. Varoufakis is damned if he abandons the austerity measures imposed on him by the troika (EU, Germany and the IMF), and equally damned if he abandons Syriza's electoral promise to renegotiate the terms of his country's bailout. Greeks will not stand for it. The troika will not stand for it. And unfortunately, for Varoufakis, these two are standing at polar opposites.

Minister Nene still has the policy space of tabling a budget that balances the necessary austerity measures, with increases in expenditure on growth-enhancing programmes. This, however, is not the only difference between Nene and Varoufakis. Nene has policy sovereignty, Varoufakis does not. But this relative calm, compared with Greece, should not create the impression that South Africa is in a cosy fiscal space, especially when considering that economic growth is tinkering, and revenue collection has been sluggish. A comparison with Greece is no reason for South Africa to relax its guard.

There is a third reason that Minister Nene should be grateful. He should be grateful that his predecessors took a medium to long-term view of how South Africa should finance its extensive spending priorities. Treating debt as sacrosanct was a necessary first step in taking a mature approach to the management of public finances. It brought about an understanding of how decisions that are taken today to finance the budget through borrowing have an impact on our ability to spend tomorrow. Debt can make a country lose some of its policy sovereignty, just like Greece, and just like households that lose their financial decision-making to banks, when they are no longer able to service their debt obligations.

When Minister Nene delivers the 2015 Budget we should all be grateful if he provides a sober account of the state of our (economic) nation, our successes, failures, and ongoing challenges. We should also be grateful if Nene leaves us with the assurance that the National Treasury has advised him that South Africa cannot borrow and spend its way to prosperity. Greece led the way in this regard, and look where it got them.

Nene has a four and not a ten-letter surname. We should all be grateful.

Neil Cole, CABRI Executive Secretary

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