Picture: Leon Lestrade Independent Newspapers – Finance Minister Enoch Godongwana, centre, flanked by SARS Commissioner Edward Kieswetter, left, and National Treasury Director-General Dr Duncan Pieterse prior to the delivery of the Medium-Term Budget Policy Statement in Cape Town this week. Given the country’s weak economy, the government has two options: to increase taxes or borrow more money from abroad, the writer says.
By Bheki Mngomezulu
On Wednesday, Finance Minister Enoch Godongwana delivered his Medium-Term Budget Policy Statement (MTBPS). Unlike in the past when he was upbeat and jovial, the minister seemed sombre and contained.
The country’s economy is not doing well. By his own admission, the government forecast a 0.8 percent growth in real gross domestic product (GDP) in the current year. This is 0.1 percent lower than the projection made during the annual Budget speech he delivered at the beginning of the year.
Godongwana went further to admit that “these growth rates are not sufficient to achieve our desired levels of development”.
The announcement that government spending would be revised down by R21 billion for the current year, reduced by R64bn in 2024/2025 and by R69bn in 2025/2026, is an honest admission of this fact.
Godongwana stated three objectives of his mini budget, which demonstrated a balancing act.
The first one was to stabilise public finances while maintaining support for the most vulnerable people and protecting front-line services.
Second, he aimed to fast-track growth-enhancing reforms – including the new financing mechanism for large infrastructure projects.
Third, the mini budget aimed to reconfigure the structure and size of the state, while also strengthening its capacity to deliver public services.
Achieving these goals was never going to be easy from a practical point of view. Unless the economy grows at the expected rate, it would be difficult for the minister to deliver on his promises.
National fiscal debt
Another factor which posed a challenge to the minister is the fact that next year is the election year. As such, he had to tread carefully. This included making decisions that were neither sustainable nor rational.
One of these decisions is to continue borrowing more money from international financial institutions such as the International Monetary Fund (IMF) and the World Bank while the country is struggling to repay its existing debt.
The implication is that South Africa will be further indebted. The fact that the country has recently been grey¬listed means that our interest rate is high. As the country services its debt, service delivery will suffer. Consequently, there could be social unrest which might lead to a further deterioration of the country’s prospects for economic growth.
Another noticeable announcement was that municipalities that owe Eskom up to March 31 this year will have their debt written off over a three-year period depending on their successful application. While this is good news at face value, it might have negative implications. First, billions of rand will be lost indefinitely.
Second, while the decision has been taken with good intentions, it might set a precedent. In future, municipalities might incur more debts knowing these will be written off at a later stage.
Inevitably, Eskom will continue to struggle financially. This will give the company more reason to prolong load shedding, which has become a public menace and a huge inconvenience.
The minister admitted that “we have experienced more power cuts this year to September 2023 than in the whole of 2022”. This shows the severity of the problem caused by instability in Eskom.
The continuation of the social relief of distress grant is understandable, especially given the high unemployment rate in the country.
However, there are two issues here. The first is that this money is not as impactful as the government would like it to be.
It was R350 in 2020 when it started and will continue in the same figure until March 2025. This is despite the inflation rate, which has seen huge increases in food and other prices.
The second issue is affordability on the side of government. Given the country’s weak economy, the government has two options: to increase taxes or to borrow more money from abroad.
The first option is nullified by the financial strain faced by South Africans and the coming election. Raising taxes now may cost the ANC votes. Borrowing more money will increase the government’s debt. There’s no easy way out.
Lastly, it’s true that “South Africa’s logistics system faces significant challenges”. Ignoring Transnet will not make these challenges disappear.
On the other hand, continuously bailing out Transnet in the same way SAA was constantly bailed out might not be sustainable.
Addressing this matter calls for astute leadership that is both visionary and pragmatic.
In a nutshell, the 2023 MTBPS will have serious implications for this country. Opposition political parties, trade unions, the private sector and the public will react differently to it.
Since next year is the election year, the contents of this MTBPS will be used to score political points.
Prof Bheki Mngomezulu is Director of the Centre for the Advancement of Non-Racialism and Democracy at the Nelson Mandela University.