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Ramaphosa says economic growth is the only way

President Cyril Ramaphosa. Image: Independent Newspapers.

President Cyril Ramaphosa. Image: Independent Newspapers.

Published Oct 31, 2023


President Cyril Ramaphosa has pointed to more rapid and inclusive growth as the only solution to South Africa’s triple challenges, and for the sustainability of public finances as the fiscus struggles under the weight of a widening government debt burden of R4.7 trillion.

In his address to the nation on economic progress last night, Ramaphosa said government spending had exceeded revenue since the 2008 global financial crisis, without a commensurate increase in economic growth.

The government is now paying more in interest on the national debt than it is budgeting for the police force, as 18 cents for every rand collected in revenue go towards servicing the debt.

The government wants to stabilise South Africa’s debt level at 70% of gross domestic product (GDP), but it has already increased to 72%.

As a result, Ramaphosa said, the government will accelerate the implementation of economic reforms over the next six months, and thus a sustainable fiscal trajectory was a precondition for growth.

“We therefore remain absolutely committed to stabilising our levels of debt and adopting a responsible fiscal policy,”

“The Minister of Finance [Enoch Godongwana] will set out the government’s plans to achieve this trajectory in the Medium Term Budget Policy Statement (MTBPS) on Wednesday.”

However, Ramaphosa said that spending on health, education, policing, and other essential services will be protected as far as possible, and will not be severely affected by the proposed budget cuts.

This comes as finance minister Godongwana will tomorrow table the MTBPS under difficult conditions for the fiscus, as load shedding has constrained economic growth and shrunk tax revenues.

Godongwana has warned that South Africa will run out of money by March 2024 unless it reduces spending.

Business Unity South Africa (Busa) today said the deteriorating state of public finances threatened the delivery of public services, and put the economic recovery of South Africa at risk.

Busa CEO Cas Coovadia said Godongwana needed to outline clear measures to ensure available funds were spent efficiently and to curtail expenditure, which has to include deep and substantial cuts in spending on non-essential and non-productive programmes, the shelving of unfunded prestige projects, and linking future public sector wage increases to inflation.

“The minister has no choice but to raise more debt, as a stop-gap measure to fund capital investment in growth-enhancing economic infrastructure,” Coovadia said.

“However, the increase in debt must be kept to a minimum and be complemented by vital economic reforms that will encourage and facilitate private-sector investment.

South Africa’s financial year-to-date budget deficit (to August 2023) widened to -R238 billion, or roughly -3.4% of GDP, representing its second-widest on record, and R77bn slippage from 2022.

Godongwana has thus been forced to tighten National Treasury’s fiscal consolidation path by proposing to implement severe budget cuts on recruitment, travel and accommodation, and catering for government departments and other State entities.

Allan Gray portfolio manager Thalia Petousis said Godongwana was attempting to enforce departmental spending cuts to pay for the rise in the wage bill, but was faced with much resistance.

Petousis said the fact that South Africa was heading into an election year, which is usually associated with a large ramp-up in spending, naturally hurt Godongwana’s cause.

“With a cost of debt at 11% - 13%, the only way to prevent severe fiscal deterioration in the absence of robust economic growth and stabilise our debt is to run a continual primary surplus of 1.5% to 3% GDP,” Petousis said.

“Put simply, to save money to pay down the interest bill with cash each year. To maintain a strong primary surplus would require austerity, which is a thorny issue in a country with such high levels of social poverty.

“In a capital-constrained world, both for local and international savers, this will be a difficult budget to fund. Fiscal consolidation remains the answer, as well as calling on international funding institutions to afford us with low-cost borrowing packages.”