MTBPS: Godongwana extends SRD grant, snips spending as govt debt grows
Finance Minister Enoch Godongwana warned gross government debt would reach 77% of GDP in the next three years, higher than what was initially projected in February.
However, he said rising debt levels are not the problem but rather the crowding of social spending and a stagnant economy.
Godongwana delivered his mid-term budget policy statement in Parliament on Wednesday, where he said that due to increased government spending, gross debt would rise from R4.8 trillion in the current financial year to R5.2 trillion in the next and exceed the R6 trillion mark by 2025/26.
“Over the next three years, debt-service costs as a share of revenue will increase from 20.7% in 2023/24 to 22.1% in 2026/27. The cost, or interest of this debt, for next year alone, amounts to around R385.9 billion,” he said.
“Over the MTEF (Medium Term Expenditure Framework), interest costs amount to R1.3 trillion. This is more than we spent on police, education, or health.”
Lower revenue performance, higher public service wage bill costs, and higher debt-service costs translated to an R54.7 billion budget deficit.
He told MPs that Wednesday’s statement set out to avoid a “fiscal crisis”, announcing plans to review and reconfigure government departments, state entities, and programs over the next three years.
“This plan will address overlapping mandates and functions, including in public entities, and ensure that we create standards for more sustainable remuneration of executives that serve public entities receiving transfers from the fiscus,” adding that President Cyril Ramaphosa would make further announcements at a later stage.
But political economist and director of the Political Futures Consultancy Daniel Silke said the government’s immediate options to address its financial challenges, other than increasing debt, were limited ahead of what many have described as a historical election next year.
“They certainly can eliminate wasteful expenditure, improve management of existing SOEs and their role in those SOEs, open the policy terrain to a much more effective public-private mix within South Africa – so, there all sorts of policy interventions that government can do to encourage growth and improve the overall state of their own coffers.
“But in the short term, there are very few direct issues to mitigate the problem. The one is that we probably have a bureaucracy that is too large for our needs, that has been getting wage increases that have been generous over many years. But politically this is very difficult to tackle in an election year where government needs the trade unions as a core part of their voter support later next year.”
HEALTH, EDUCATION, POLICE AND SOCIAL RELIEF GRANT
Funding has been allocated to education, health, and policing sectors.
Additional funding of R24 billion this year and R74 billion over the medium term will be used to fund the 2023/24 wage increase and the associated carry-through costs.
R34 billion has been set aside for the extension of the social relief of distress (SRD) grant by another year, to March 2025.
The R350 monthly grant was introduced in 2020, at the height of the COVID-19 pandemic, to support unemployed people who were not already Social Security beneficiaries.
READ: Mini-budget: ‘Budget cuts won’t save South Africa’
Meanwhile, the national government has offered support to local governments owing Eskom.
Earlier this year Godongwana announced Eskom’s debt relief amounting to R254 billion from 2023/24 to 2025/26.
On Wednesday, he tabled the Eskom Debt Relief Amendment Bill, which seeks to enhance the enforceability of the relief conditions.
“Upon application by a municipality, the debt to Eskom up to 31 March 2023 will be written off over a three-year period in equal annual tranches. This is provided the municipality complies with set conditions.”
By last month, 67 applications had been submitted, totalling 97% of the total municipal debt owed to Eskom at the end of March 2023 (or R56.8 billion).
Of those, 28 applications have been approved, while the remainder are being assessed and verified with provincial treasuries.
TRANSNET PERFORMANCE ‘UNDERWHELMING’
Just weeks after the resignations of Transnet CEO Portia Derby, Freight Rail CEO Siza Mzimela and board member Popo Molefe, the minister made it clear that Transnet would have to toe the line before Treasury would consider providing financial support to the ailing SOE.
The minister lamented the underperformance in rail, which is estimated to have cost up to 5% of GDP in 2022, with losses in the region of R50 billion in the minerals sector alone.
“No modern economy can thrive and grow new industries if rail lines are beset by delays, and ports are unable to efficiently handle incoming and outgoing cargo. Transnet’s performance in this regard has been underwhelming, and its operations have been strained by a worsening financial state.”
Godongwana said broader reforms of the logistics sector will be guided by the Freight Logistics Roadmap.
“The roadmap sets out a clear path for enhancing efficiencies, facilitating the introduction of competition, and leveraging the financial and technical support of the private sector. Only once these three objectives are reflected in Transnet’s corporate and operational plans will there be a conversation about whether and how the government can provide financial support to transform the logistics sector,” the minister said.
WATCH: Finance minister Enoch Godongwana delivers MTBPS
