While discussing the economy and politics the other day, a friend said I am being unfair to Finance Minister Pravin Gordhan. Other countries like the US and UK – from where he comes – also experienced difficult economic conditions after the crash in 2008.
Unwittingly, he then asked and answered my criticism of Gordhan: these countries implemented measures to mitigate the crisis, including fiscal discipline and austerity measures, as Britain did, while South Africa did not. Also, he overlooked the fact SA is not a developed country or most emerging markets that have the economic wherewithal and discipline to self-adjust, learn from its mistakes and grow.
And so we came to my main criticism of Gordhan that my friend who, in his defence, is not knowledgeable about economics, doesn’t understand. Under Gordhan’s stewardship from 2009 to 2014 government debt went from about 30% of GDP to over 50%, undoing much of his predecessor Trevor Manuel’s (of whom I’m also not a fan) work.
Twenty-year average GDP growth dropped from 3.2% to 3.0% a year. The budget deficit rose from 3.8% to 4.0%.
Delivering the Medium Term Budget Policy address in 2013 Gordhan, as analysts regularly do, “pinpointed SA’s public-sector wage bill as one of the risks to the country’s fiscal sustainability and has promised [emphasis added] to ensure this doesn’t expand any further”. He noted spending had doubled from 2007/08 to 35% of the budget in 2013. When he took office it was 32%. It’s now 40%, double the developing economy average of 22%.
But like his other promises to reel in government spending and facilitate growth, it was unsuccessful, which is an indictment of his management of the portfolio. Rating agencies look at growth, budget deficit and public wages in particular to assess the strength of a country’s economic policies and its credit worthiness.