Developments at the Treasury are troubling

The Treasury answers directly to political leaders, thus exposing it to risks that have crept in due to dysfunction in other parts of the state.

Institutional strength is one of the characteristics advanced economies have that emerging markets do not.

When a country has strong institutions, it shows in better economic growth, increased employment prospects, a reduction in poverty, and general development. Weak institutions are associated with a high cost of doing business, lack of investment, low economic growth, and high unemployment rates.

South Africa’s institutional framework has weakened over the past decade relative to the period from 1994 to 2007. While this was a generalised erosion of public institutional strength, which was well ventilated in the state capture commission, I want to zoom in on developments at the National Treasury in recent years that risk derailing it from its core mandate of prudently managing public finances.

Before I delve into the core of my observations let me state that the Treasury, together with the South African Revenue Service and the South African Reserve Bank, is a world class institution. A narrative that the Treasury is weaker now relative to the last decade is not supported by evidence. Yes, there have been notable departures of experienced Treasury officials, but this does not translate into weakness of the institution.

I will offer three reasons in support of my view. First, it is largely the current team of officials who in 2017 showed for the first time a concerning outlook on our unsustainable debt trajectory, which was the result of decisions made over time, including by experienced former officials.

Second, it is the current team that took a firm decision to not implement a wage agreement because it was not affordable and risked fiscal sustainability, and went all the way to the Constitutional Court and won.

Third, it is the same team that tabled the 2020 February budget, the adjustment budget, and the 2020 midterm budget, in a difficult and highly uncertain economic environment.

This does not indicate weakness in this team; it must be viewed as competent. The only difference is that it is comprised of comparatively young people. Young is not an equivalent word for weak or inexperienced; leadership is better shown during difficult times, not during tranquil times such as the boom in commodity prices in the 2000s or a period of cheap money during the 2010s.

Returning to my main point about the institutional strength of the Treasury: in simple terms, the Treasury manages and safeguards the country's finances. Part of the institutional set-up included delegating some parts of financial management to provinces and municipalities, while state-owned companies were put under the department of public enterprises.

This effectively means that the Treasury team was designed to have the capacity and the technical skills to do the core function of liability management and the national budget.

When the rails were coming off under state capture, the original set-up could not continue unchanged. Many state-owned companies mismanaged funds and became effectively bankrupt. The Treasury had to step in. Municipalities and provinces at times mismanaged funds, and again the Treasury had to step in and sort out the mess.

If these problems were infrequent, one could be forgiven for saying it happens from time to time. However, this became a permanent feature, especially with SOEs and municipalities, where there is permanent incapacity, embedded corruption and at times incompetence, built into the system.

The impact is that many of the functions designed to be delegated to other spheres of government are now being loaded onto the Treasury to manage. If this was accompanied by bolstering the Treasury's capacity it would be understandable. But this is not the case. The existing team has been overburdened by excess functions of oversight that were not designed to be part of their day-to-day operations, and are perhaps not even core to the Treasury.

However, because all the failures elsewhere in the state have negative financial implications, the Treasury has no choice but to step in.

I am left wondering if there have ever been considerations of the impact of this on the young and competent team in a way that distracts them from their core functions.

Like the Reserve Bank, the Treasury is victim of its own success. However, unlike the Reserve Bank, the Treasury answers directly to political leaders, thus exposing it to risks that have crept in due to dysfunction in other parts of the state.