Treasury admits to looming debt crisis
7 August 2023
When Finance Minister Enoch Godongwana tabled his budget earlier this year he was projecting revenue off economic growth of 1.4% from 2023 to 2025. Actual growth is close to zero and has resulted in a revenue shortfall of almost R60 billion.
Large expenditure items such as the wage bill surge and Municipal debt to Eskom write off’s, were not accounted for and has brought the credibility of the Budget into question.
The unexpected 7.5% surge in the wage bill, which will amount to an additional R37.5 billion expenditure, highlights the lack of prudent planning by Treasury. Such drastic miscalculations inevitably lead to further austerity for Government Departments. Instead of channelling funds towards bolstering service delivery, Department’s will now be grappling to accommodate these wage hikes. Government must make choices between funding a bloated administration and funding services. It clearly is not willing to do that.
Minister Godongwana's decision to yield to the labour unions’ R37.5 billion demand – a sum that will predominantly find its way to the pockets of the ANC's millionaire manager class – is a testament to his party's skewed priorities.
South Africa's stagnant economy, suffering under the ANC’s fiscal mismanagement, presents a bleak picture. Renowned institutions such as the SA Reserve Bank and Fitch Ratings depict a grim but more realistic future of nearly zero growth under the ANC. Lower growth means lower tax revenue, and less funds for service delivery. The financial landscape is further complicated by higher than anticipated borrowing costs, accelerated by inflation and foreign policy blunders such as the Lady R incident, alignment with Russia, and being greylisted - all increasing SA's risk premium.
Treasury will need to borrow to fund the shortfalls created by improper forecasting and the ANCs irresponsible spending requirements. As we teeter on the brink of the fiscal cliff, the government's appetite to borrow without foresight presents existential risks. This was confirmed by the Deputy Director General of Treasury’s Budget Office, Edgar Sishi, who admitted that the environment for borrowing, which included elevated interest rates and political risk, had not improved.
No local or foreign investor will risk investing money in this environment. Yet, the ANC appears content with complacency, rather than championing necessary reforms.
In this turbulent sea of financial mismanagement, the Democratic Alliance (DA) offers an anchor of hope. The DA’s economic and foreign policy will improve investor sentiment. In October, the DA’s Alternative 2023 MTBPS will present a fiscal policy platform that would redirect South Africa's economic trajectory towards virtuous growth to generate more jobs, reduce public debt, raise living standards, and attract foreign and local investment.
Issued by Dion George, DA Shadow Minister of Finance, 7 August 2023
