Politics editor
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Godongwana slashes government spending as financial woes worsen

By Clive Ndou

Godongwana said government will slash spending by even higher amounts in coming years.

Finance minister Enoch
Finance Minister Enoch Godongwana. Photo: Gallo Images

As government’s financial woes worsen, Finance minister Enoch Godongwana on Thursday slashed departments’ spending by a staggering R21 billion as part of initiatives to conserve money and avert a “fiscal crisis”.

Delivering his Medium-Term Budget Policy Statement (MTBPS) in Cape Town, Godongwana said government will slash spending by even higher amounts in coming years.

“In the current financial year, spending has been revised down by R21 billion.

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Further reductions of R64 billion in 2024/25 and R69 billion in 2025/26 are proposed,” Godongwana said.

The government, whose debt is set to hit the R6 trillion mark by 2025, will next year have to fork out close to R400 billion in interest.

Should government continue borrowing at the current rate, Godongwana warned, it would be difficult for departments to continue delivering key services as the bulk of state funds will go towards servicing the government’s debt.

Our challenge is that rising debt services costs are crowding out important social spending, and our economy has not grown fast enough to support increasing expenditure or our current debt levels. Therefore, this policy statement sets out our strategy for avoiding a fiscal crisis and preventing the build-up of systemic risks to the economy.

In his main budget speech, tabled at the beginning of the year, Godongwana projected that the SA Revenue Services (SARS) will, during the course of the year, collect enough taxes to support government’s current spending.

However, the National Treasury was forced to change spending plans after realising that the government expenditure will exceed its revenue by R200 billion.

In his mini budget, Godongwana cited “power cuts, the poor performance of the logistic sector, high inflation rate and weaker global environment” as factors which led to SARS being unable to collect enough taxes.

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While government’s fiscal situation could be turned around if the country’s economic growth levels were to improve, Godongwana said it was unlikely to improve in the medium term.

The weaker growth outlook for China, South Africa’s largest trading partner; the lower commodity prices; and the risk that the U.S. interest rates will remain higher for longer, means the global economic environment is less supportive of South Africa’s growth prospects.

“Domestically, we forecast a 0,8% growth in real GDP in 2023. This is 0,1 percentage points lower than the growth projection at the time of the 2023 budget.

“Growth is projected to average 1,4% from 2024 to 2026. These growth rates are not sufficient to achieve our desired levels of development,” he said.

To further reduce spending in the face of the government’s depleting resources, Godongwana proposed the trimming of government departments and state entities.

“We propose a strategy of spending adjustments based on policy priorities, and a reconfiguration and rationalisation of the state, which includes closing or merging ineffective entities and programmes, and enhancing the complementarity of its functions,” he said.

Godongwana, who did not provide details on when the reconfiguration was likely to take place, said

President Cyril Ramaphosa will “in due course” update the nation on the matter.

Despite the gloomy government financial picture painted by Godongwana, the finance minister, however, pointed out that there were some positives. “Our economy has shown signs of resilience.

“Real Gross Domestic Product (GDP), a measure of economic performance, is now above pre-pandemic levels. In the first half of the year, the economy grew by 0,9% despite record levels of load shedding. The tourism sector grew more than 70% in the period, driven by the arrival of more than five million international tourists.

“Agriculture expanded by 7,8% in the period compared to 2022, while the construction, transport and communications sectors also achieved strong growth. In the words of the president, these are the reasons for hope,” he said.

In his main budget, Godongwana received some criticisms after announcing that the government would take over Eskom’s R254 billion debt in what at the time appeared to be a blank cheque to the power utility.

ALSO READ | Godongwana to brief nation on state of country’s finances

However, in his MTBPS, Godongwana said the government has finalised the Eskom Debt Relief Amendment Bill which spells out the conditions for the debt relief

It provides for the payment of interest by Eskom on amounts advanced as part of the debt relief loan; the amendment also provides for the reduction of the amount of debt relief available to Eskom in the event that the entity does not comply with the national Treasury’s conditions.

While Eskom’s power outages have been blamed for the country’s deteriorating economic outlook, the power utility has in recent months improved power supply.

“Our electricity system is undergoing an enormously positive transformation. We are reaping the fruits of our efforts to reform the electricity sector, including the easing of restrictions on self-generation and encouraging private investment in the area,” he said.