Enoch Godongwana, The New Finance Minister, Has Promised Policy Consistency

 

South Africa’s new finance minister has pledged to maintain policy continuity and to stick to the Treasury’s current fiscal framework and spending discipline.

While Enoch Godongwana’s style may differ from that of his predecessor, Tito Mboweni, his approach to handling the nation’s finances will be similar, he said in his first contact with investors since being appointed to the role last week.

On a conference call hosted by Standard Bank Group Ltd. and HSBC Holdings Plc on Friday, Godongwana, 64, said, “I would be keeping to the sustainable budgetary path he has selected.” “To some extent, the fiscal framework is sacred. That fiscal structure isn’t likely to change much.”

As Godongwana spoke, the rand recovered some of its losses and bond yields dipped. By 3:50 p.m. in Johannesburg, the rand was barely changed at 14.7885 per dollar, having recovered from a 0.6 percent loss. After trading as high as 7.44 percent, the yield on the most liquid 2026 government bond was 3 basis points lower at 7.4 percent.

Fitch Ratings gave Godongwana’s appointment as a replacement a thumbs up, saying he understands the need to avoid a debt crisis and that he won’t have an immediate influence on the Treasury’s budgetary objectives.

Under Mboweni, the Treasury pledged to stabilizing the country’s debt ratio at 88.9% of GDP by the 2026 fiscal year, and shifted its focus to making a primary budget surplus, rather than a spending ceiling, the most important fiscal anchor. Some members of the ruling African National Congress and its labor-union allies have objected to its proposals, which included expenditure cuts.

Economy in Peril

Godongwana has a difficult challenge ahead of him in reviving an economy that shrank the most in a century last year as a result of stop-start restrictions implemented to limit the spread of the coronavirus, and has since struggled to restore momentum.

While rising commodities prices have provided the government with a fiscal windfall, it is under pressure to do more to address the consequences from the pandemic and violent riots that occurred last month, resulting in the looting and ransacking of thousands of businesses.

“There are extra stresses on the system that require fiscal assistance,” Godongwana said, citing the state wage bill, debt-ridden state firms, and debt-servicing costs as the biggest threats to state finances.

For almost a decade, Godongwana has led the ANC’s economic reform committee, playing a key role in policy formulation.

He has spoken out against the government’s plans to amend the constitution to make it easier to grab land without compensation and nationalize the central bank.

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