South African firms, especially in the mining sector, have made serious gains this year from strong activity and high commodity prices, boosting government revenue as tax collection rises. Picture:Simphiwe Mbokazi.
South African firms, especially in the mining sector, have made serious gains this year from strong activity and high commodity prices, boosting government revenue as tax collection rises. Picture:Simphiwe Mbokazi.

Lesetja Kganyago warns government against making large spending commitments

By Siphelele Dludla Time of article published Oct 7, 2021

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South African Reserve Bank (Sarb) Governor Lesetja Kganyago has warned the government against making large spending commitments on the back of buoyant revenues due to higher commodity prices.

South African firms, especially in the mining sector, have made serious gains this year from strong activity and high commodity prices, boosting government revenue as tax collection rises.

Higher government revenues have resulted in rising calls for enlarging pro-poor spending, especially introducing a permanent, universal basic income grant on the back of devastating job losses due to the Covid-19 pandemic.

However, Kganyago yesterday at a Centre for Development and Enterprise webinar said the government should make wise spending decisions and not be tempted by the sudden revenue boost as commodity prices would not stay elevated forever.

“There is a risk that commodity exporting countries might be led to live as if they are richer than what they actually are,” Kganyago said.

“South Africa, as a commodity exporter, should guard against these complacencies.

“These complacencies could creep in, including us making commitments and expenditure outlays that we might not afford outside rising commodity prices.

“Indeed, there are indications that commodity prices might be correcting and if they do correct, that could mean that we would be facing risks that we did not think about earlier in the year.”

Finance Minister Enoch Godongwane will next month table his maiden medium-term budget where he will outline whether it would be feasible to introduce the touted basic income grant in the February 2022 Budget Review.

Godongwane is facing pressure from labour federations and civil society to use the recent fiscal windfall to nail out the poor, but he has to balance that with the risks of a credit ratings downgrade.

The finance minister had previously said that the country should rather focus on creating jobs instead of raising funds for a basic income grant, which could cost in the region of R200 billion.

Earlier this week, Momentum Investments economist Sanisha Packirisamy echoed Kganyago’s call against making long-term fiscal decisions based on a temporary hype.

“Although the commodity price windfall has boosted revenues for this fiscal year, medium term risks remain high in the context of shorter-term wage agreements and a push for pro-poor spending,” she said.

“Part of the revenue overrun will now have to cover for the additional costs associated with the finalised public sector wage bill agreement as well as to fund the additional fiscal support measures which were announced in response to the July unrest and further lockdown restrictions.”

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