Cape Town-181024 Minister of Finance Tito Mboweni leads his team to the National Assembly. Photographer:Phando Jikelo/African News Agency(ANA)
Cape Town-181024 Minister of Finance Tito Mboweni leads his team to the National Assembly. Photographer:Phando Jikelo/African News Agency(ANA)

Mboweni expected to deliver further expenditure cuts in MTBPS

By Siphelele Dludla Time of article published Oct 19, 2020

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JOHANNESBURG - Finance Minister Tito Mboweni is expected to deliver further expenditure cuts when he tables the Medium Term Budget Policy Statement (MTBPS) next week after President Cyril Ramaphosa committed the government to reducing spending.

Ramaphosa last week unveiled the long-awaited Economic Reconstruction and Recovery Plan, committing to cut spending and reduce the government debt as part of reforms to boost economic growth.

The government is targeting 3percent average annual economic growth over the next decade.

Ramaphosa said the MTBPS will outline a supportive macroeconomic framework of fiscal consolidation, debt reduction and the re-prioritisation of funds.

However, he steered clear of specifically mentioning where the budget cuts will be made; in particular, saying nothing about the contentious public sector wage bill. He did, however, say that the government would reduce the reliance of state-owned enterprises on the fiscus after years of multibillion-rand bailouts.

Ramaphosa said the government could not sustain the current levels of debt, as increasing borrowing costs were diverting resources that should be going to economic and social development.

“In reducing government expenditure, we are ensuring that funds are reprioritised towards poverty alleviation, infrastructure investment, support for economic development, and fighting crime and corruption,” he said.

South Africa's national debt is projected to rise close to R4trillion, or 81.8 percent of gross domestic product (GDP), by the end of this fiscal year.

The government wants to narrow the deficit and stabilise debt at 87.4percent of GDP in 2023/24.

Investec chief economist Annabel Bishop said Ramaphosa’s plan should have received a more positive market response, as it highlighted the need for fiscal consolidation and the reduction in government expenditure.

“The MTBPS is expected to underpin the recovery plan and so could engender a positive market response if it avoids hiking the debt projection up to a peak of 100percent, and expenditure is materially cut,” Bishop said.

Mboweni in June said the Medium-Term Expenditure Framework process would be guided by the principles of zero-based budgeting by reducing unaffordable expenditure.

He proposed a fiscal path to find spending adjustments of about R230billion over the next two years and tax measures of R40bn over the next four years. This was over and above the proposed cut of more than R16bn in the public sector wage bill over the next three years made in February.

Senior economist at the Alternative Information and Development Centre Dick Forslund said the possible expenditure cuts would result in a nominal cut of 4percent, or more than 7percent in real terms, from non-interest expenditure.

“In this way, the president's plan for the public employment of more than 800000 work opportunities is completely undermined by the Treasury’s budget plans,” he said.

Forslund said the country’s fiscal position required a break from the current macroeconomic framework.

“The state is meant to lead this job creation programme in conjunction with a massive infrastructure programme, yet is being further incapacitated and undermined by Treasury’s commitment to irrational austerity.”

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