BLSA sees downgrade risk from latest Treasury resignation
Date: 14 November 2017 | Author: Business Leadership South Africa Category: News
Business Leadership SA (BLSA) CEO Bonang Mohale said the departure of the National Treasury’s long-standing budget head Michael Sachs is “of enormous concern” as it adds to an exodus of expertise at the institution, which “undermines” its credibility.
Treasury confirmed on Monday that Sachs, who has been at the institution for eight years and headed the budget office that is responsible for crafting the national budget, had resigned.
“Sachs is another in a line of admirable and competent professionals leaving what is arguably our most important ministry tasked with the economic well-being of the country,” said Mohale, who heads BLSA, a group of more than 70 of the country’s largest companies.
According to a statement by Treasury, Sachs has expressed his interest to “serve the public sector in a different capacity”. Although the institution did not explain the reason behind Sachs’ resignation, media reports have suggested that he resigned last week due to President Jacob Zuma’s interference in the institution’s fiscal and budgetary policymaking process.
Zuma is pushing for a free higher education policy for students coming from families earning a combined annual income of not more than R350 000. The policy would cost an already constrained fiscus R40 billion and put Treasury’s budgeting process under significant strain.
The Presidency, however, has denied this.
Mohale has warned that Treasury’s latest leadership change comes right before credit rating agency Moody’s publishes its review of SA’s sovereign credit rating on November 24. Moody’s cut SA’s sovereign credit rating one notch above junk, keeping SA’s foreign-currency and rand-denominated debt at investment grade. A downgrade to junk of SA’s foreign and local currency debt by Moody’s would be catastrophic, as the country could lose its spot in Citigroup’s World Government Bond Index.
Treasury’s budgeting process has been delegated to the Presidential Fiscal Committee (PFC), which is overseen by Zuma.
“In his Medium-Term Budget Policy Statement, Minister [of Finance Malusi] Gigaba told us about a new structure in the Presidency to oversee expenditure in the Treasury. We at BLSA are of the view that this could well violate the constitution,” said Mohale.
He said Parliament carries the ultimate responsibility for approving the budget and not the Presidency. He added that Sections 215 and 216 of the Constitution ensure transparency and expenditure control, including “the right of the Treasury to stop the transfer of funds to organs of state in the face of any serious or material breach of proper financial management”.
Zuma’s free-fee plan and speculation over Sachs’ resignation sparked a sell-off in the rand during Monday’s intra-day trade. The rand has weakened by nearly 1% from 9:00 am when the local unit was trading at R14.40.
If Zuma pushes his policy, it would undermine Treasury’s role in keeping a lid on government spending and wasteful expenditure and finding the best ways to grow the economy.
Since Zuma’s cabinet reshuffle in March, which saw the axing of finance minister Pravin Gordhan and his deputy Mcebisi Jonas, Treasury has been rocked by leadership changes. Along with the axing of Gordhan and Jonas, Director-General Lungisa Fuzile resigned and deputy Director-General Andrew Donaldson retired.
Treasury said Sachs will not be leaving the institution immediately, in order to ensure a proper handover to another senior official and to “allow for a smooth transition with as little interruption to the work of the budget office as possible”.
“Both the Director-General [Dondo Mogajane] and I are aware of protecting the integrity and transparency of the budget system and process, and ensure that all tax and expenditure decision processes continue to be run by the Treasury and Minister of Finance, and continues with the consultative process introduced by the first democratic government,” said Gigaba in a statement.
Published on Moneyweb (13 November 2017)