South Africans’ buoyant mood following the Springboks’ Rugby World Cup victory over the weekend could be dampened as early as Tuesday afternoon when Finance Minister Enoch Godongwana delivers his medium-term budget policy statement (MTBPS).
It is likely to paint a gloomy picture of government’s finances.
In his main budget in February, Godongwana projected an improvement in the government’s financial position for the 2023 financial year.
However, the finance minister is now expected to announce big changes in the MTBPS after the government’s expenditure exceeded revenue by close to R200 billion.
Earlier, the National Treasury proposed far-reaching cost-cutting measures which included a moratorium on government recruitment, new procurement contracts for infrastructure programmes and the use of external catering services.
There were concerns in the ANC and its alliance partners that such drastic cost-cutting measures on the eve of next year’s general elections would cost the ruling party at the polls.
While pressure from the ANC and other organisations appear to have softened Godogwana’s previous stance that departments should implement a raft of austerity measures in the face of the depleting government coffers, the finance minister in his MTBPS is nevertheless expected to prescribe some form of cost-cutting measures.
Despite the government’s debt-servicing costs currently hovering around R300 billion annually,
Godongwana now appears to be prepared to borrow more to offset the fiscal deficit.
“We have to cut expenditure and increase borrowing,” he said.
Lower productivity as a result of load shedding, the high cost of imports due to the weakening rand and the reduction in spending by households resulted in the South African Revenue Services (SARS) collecting less taxes than it had previously projected.
The government, which prior to the Covid-19 was spending more than R150 billion on social grants, has since seen its cumulative social grants spending balloon to R200 billion following the introduction of the R350 social relief of distress (SRD) grant.
Even though the government had announced that the R350 SRD grant would be phased out at the beginning of the year, pressure from organisations such as the SA Communist Party (SACP) coupled with the fact that Covid-19 plunged many South Africans into deeper poverty, resulted in the government’s extending the grant to March next year.
While Godogwana indicated that one of the only solutions to the current financial situation was for the government to go out and borrow, he was concerned that the government could soon not be able to service its debt.
The problem with debt is not its size, it is the capacity of the economy to service it. In this environment, our capacity to service it is constrained.
Merchant Bank chief economist, Isaah Mhlanga, said most of the challenges currently faced by the government were due to the borrowing culture.
“We’ve had this debate of spending our way out of recessions for a very long time. But without fixing the productive capacity of the economy, that cannot be a sustained approach to fix the economic growth malaise that we have.”
On the government’s ballooning social spend, Mhlanga said handing out grants was not a sustainable solution.
“We need reforms that are going to provide people with employment so that they can earn their own income,” he said.