FINANCE Minister Enoch Godongwana has remained bullish about South Africa’s fiscal discipline as the country’s better-than-expected revenue collection will help cover social spending and reduce the Budget deficit.
In his Budget speech yesterday, Godongwana said the National Treasury was on course to close key fiscal imbalances and restore the health of public finances in the medium-term.
Godongwana, however, said the country’s debt burden, currently standing at R4.35 trillion, remained a matter of serious concern amid growing spending demands.
Debt service costs consume an increasing share of gross domestic product (GDP) and revenue.
On average, 20 cents of every rand collected in revenue every year will be needed to pay debt-service costs.
“This huge sum is owed to lenders domestically and around the world,” Godongwana said.
“It incurs large debt-service costs, averaging R330 billion annually over the medium-term expenditure framework. “For this reason and to support the economic recovery, in this Budget we are reducing the fiscal deficit and stabilising debt.”
South Africa’s gross loan debt is expected to increase from R4.35 trillion, or 69.5 percent, of GDP to R4.69trln, or 72.8 percent of GDP in 2022/23.
Godongwana said debt-to-GDP will thus stabilise at R5.43trln or 75.1 percent of GDP in 2024/25 – a year earlier than projected in November.
Over the next three years, consolidated government spending is expected to grow at an annual average of 3.2 percent, from R2.08trln in 2021/22 to R2.28trln in 2024/25.
However, the introduction of unfunded spending programmes, another economic slowdown, higher borrowing costs, the contingent liabilities of state-owned companies and higher-than-budgeted public-service wage settlements continue to pose significant risks to the fiscal outlook.
Contingent liabilities are projected to increase from R1.15trln in 2021/22 to R1.23trln in 2024/25.
The 2021/22 Budget deficit decreased by R135.7 billion relative to the 2021 Budget estimate. Godongwana said the government would use higher-than-expected revenue of R182bn to reduce the gross borrowing requirement by R135.8bn in 2021/22.
“We now expect to realise a primary fiscal surplus – where revenue exceeds non-interest expenditure – by 2023/24,” he said. “Madam Speaker, one swallow does not a summer make. The improved revenue performance is not a reflection of an improvement in the capacity of our economy.
“As such, we cannot plan permanent expenditure on the basis of short-term increases in commodity prices.
“To be clear, any permanent increases in spending should be financed in a way that does not worsen the fiscal deficit.”
The consolidated Budget deficit was projected to narrow from 5.7 percent of GDP in 2021/22 to 4.2 percent of GDP in 2024/25 financial year.
Last year, ratings agencies Moody’s and S&P Global maintained the country’s sovereign credit rating at sub-investment grade with a negative outlook.
In December, Fitch affirmed South Africa’s long-term foreign- and local-currency debt rating at BB- and revised its outlook from negative to stable, citing a faster-than-expected economic recovery and improved fiscal performance.
Godongwana said rating agencies remained concerned with the country’s ability to implement fiscal consolidation measures, and its high public debt and low economic growth.
“The government remains committed to restoring South Africa’s investment-grade rating by stabilising the debt-to-GDP ratio, narrowing the budget deficit and accelerating long-term economic growth,” he said.
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