SA heading for debt trap as we spend more than we earn: Tito Mboweni
Cost-saving interventions include banning the government from giving cellphones to civil servants
SA is set to spend more to service its debt than it does on public health care.
Figures contained in the medium-term budget policy statement [mini-budget] tabled by finance minister Tito Mboweni on Wednesday show consolidated government expenditure will reach R6.3-trillion over the next three years.
LISTEN | 2019 Medium-term budget policy statement highlights
A staggering R796bn of this will go towards servicing the country’s debt, which is now at R3-trillion and will balloon to R4.5-trillion in the next three years.
As tax revenue falls and expenditure increases – driven by bailouts to struggling state-owned entities – national debt is heading to more than 70% of GDP.
“On our current trajectory, by the end of the three-year framework, debt service costs will be bigger than spending on health and economic development,” Mboweni said in his speech.
Mboweni warned that SA will get caught in a dept trap if urgent and drastic cost-cutting measures are not put in place.
“The consequences of not acting now would be gravely negative for SA. Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap.
“The unemployment crisis will worsen and government debt could balloon. This is an outcome we are determined to avoid,” he said.
Low economic growth, tax revenue shortfall, increased bailouts to struggling state-owned entities and a runaway public-sector wage bill have been cited by the National Treasury as key contributory factors to rising debt and widening of the budget deficit to 6.2%.
Eskom remains the biggest risk to the economy as it is R450bn in the red.
The power utility, which will be broken into three separate units – generation, transmission and distribution – could receive R230bn in government support over the next ten years, mainly to service its debt.
Economic growth has been revised downwards from 1.5% to 0.5% in 2019, gradually rising to 1.7% in 2022; while a tax revenue shortfall of R52.5bn in 2019/2020 and R84bn in 2020/2021 is forcing government to borrow more to meet its financial obligations.
The consequences of not acting now would be gravely negative for SAFinance minister Tito Mboweni
Ratings agencies are watching Mboweni closely on the eve of deciding if SA should be downgraded to sub-investment or junk status.
Education and social grants receive the lion’s share of funds as they account for 48% of all government spending.
According to the medium-term budget, government spending has been adjusted upwards by a further R23bn since the main budget in February, but this will decrease to R8.2bn by 2020/2021.
Addressing journalists just before delivering his speech in the National Assembly, Mboweni hinted that he was in favour of ditching the October medium-term budget policy statement in favour of presenting only the main budget in February.
“I’m quite convinced that the time has come for us to re-evaluate the efficacy of this approach,” he said, adding that a review of whether it was working had not been done since the MTBPS was introduced in 1997.
He said the debt-to-GDP ratio was of major concern as it should be hovering around the 30% mark, or ideally be at zero.
He listed a number of “fiscal leakages” (wastage) which he said the Treasury was clamping down on with a raft of cost-saving interventions.
Among these are stopping government-issued cellphones for public servants (which cost around R5bn a year); containing the wage bill through lower-than-inflation increases; reviewing occupation-specific dispensation allowances; freezing the salaries of ministers, MECs and mayors; and forcing them to travel economy class on local trips.
Government has identified spending reductions of R49.5bn over the next two years, but is looking at others areas where fat can be trimmed as it targets spending cuts and revenue boosting measures to the tune of R150bn by 2023.
“Our problem is that we spend more than we earn. It is as simple as that,” Mboweni told MPs.