Ex-South African Finance Minister Manuel Warns Against Unaffordable Grants

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(Bloomberg) -- Former South African Finance Minister Trevor Manuel warned the government against introducing permanent stipends for the poor without coming up with a sustainable source of revenue to fund them.

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The nation’s shrinking tax base “can no longer bear all of the costs” of an unaffordable state wage bill and extended welfare benefits, Manuel, who is now chairman of insurer Old Mutual Ltd., said in an interview in Johannesburg on Thursday. There is also the risk that “you don’t develop the infrastructure and you don’t develop the jobs that create future employment,” he said.

The government began paying low-income households monthly grants of 350 rand ($20) after the onset of the coronavirus pandemic in 2020, and has renewed the temporary stipends several times since then. Last month, the grants were extended until the end of March 2024.

The National Treasury has so far resisted pressure from civil rights groups to make the payments permanent. Finance Minister Enoch Godongwana on Thursday said there’s a legitimate case to be made for shielding the poor against the impact of rising living costs, although the kind of support that should be provided and how to pay for it still needs to be determined.

Manuel, who served as finance minister from 1996 to 2009 and helped oversee the country’s longest period of economic growth on record, warned against increasing borrowing to fund grants and wages.

“You cannot borrow from the World Bank and from capital markets to finance these current expenditures,” he said. “It’ll be your complete undoing and it’ll fuel more and more populism.”

Other highlights:

  • Manuel noted that there was growing impatience with the government over persisting low growth and high unemployment. “It is a very, very difficult situation and people expect governments to be able to resolve this. And the fiscal means just isn’t there.”

  • Eskom Holdings SOC Ltd., the embattled state power utility, needs to provide details of how it will use a bail-out that’s due to be announced in the budget in February. The government has undertaken to take over one-third to two-thirds of Eskom’s approximately 400 billion rand of debt.

  • Eskom and other state companies are confronting more than just fiscal constraints. “If you think that the problem is only the lack of money, you’ve got it badly wrong.”

  • Eskom’s plant performance “by any stretch of the imagination is atrocious. What accountability is there going to be for that? And the bulk of our problems seem to be at the level of generation before it gets a transmission or distribution. How do we fix that?”

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