President Cyril Ramaphosa’s State of the Nation Address (Sona) speech last week has put an additional burden on Finance Minister Enoch Godongwana’s upcoming Budget speech to make allocations for the expansion of social grants and the controversial health plan.
This was the view of a number of analysts who said Ramaphosa had trumped populist policies at the expense of the fiscus during his Sona, in a bid to curry favour with the electorate and secure a second term as the country’s president.
Ramaphosa last week said the government would extend it and improve the R350 Social Relief of Distress (SRD) Grant, which currently reaches some 9 million people every month, as the next step towards income support for the unemployed.
He also said that the government was planning to incrementally implement the National Health Insurance (NHI), dealing with issues like health system financing, the health workforce, medical products, vaccines and technologies, and health information systems.
Investec chief economist Annabel Bishop on Friday said the 2024 Sona touched on the same themes run through each year, showing limited progress against last year’s address, particularly on eradicating the various crises gripping the country.
“The Sona covered many topics, noted recent and past progress, but failed to show urgent measures to reduce severe growth impediments, promoting the NHI which has damaged business confidence,” Bishop said.
“The extreme electricity and freight crises are severe impediments to growth, and the Sona failed to fully open up these sectors to the private sector, dulling business sentiment towards the address as little to spur faster growth was announced.”
However, all these promises of a ‘phased-in approach’ come at the time when the fiscus can hardly afford to absorb a number of medical doctor graduates into the healthcare system, and has limited public servants wage increments amid lower-than-expected revenues.
The extension of the SRD Grant for another year to March 2025 makes up 11% of government spending alone, and will cost the government an additional R34 billion.
Godongwana last year started implementing deep spending cuts of R213bn over the next four years, including R21bn for the 2023/24 financial year, on the back of a projected R57bn revenue shortfall for this year.
Citadel Global director Bianca Botes on Friday said the budget speech would be a tough one for Godongwana, and the markets were expecting to see more populist policies since this was an election year.
Botes said proposals such as the NHI and the SRD grants being made permanent would be popular with voters, but the business sector remains sceptical as to how the government would finance it without collapsing the tax base.
“It will put significant strain on both our healthcare system and our fiscal position. It will be important to see in the Budget and exactly how they plan to finance it,” Botes said.
“The big question is: do we have the financing to pull off these populist policies, and what will we need to sacrifice to implement these policies?
“We are hoping that the finance minister will make further pronouncements on key Sona themes such as job creation, public-private partnerships, the fight against corruption and state capture, and the recovery of stolen state assets.”
All these government commitments have heightened the risk of fiscal slippage as public finances continue deteriorating, in spite of Godongwana re-affirming the government’s commitment to fiscal consolidation.
South Africa has run a budget deficit for over 15 years, and the government projects that debt-to-GDP will rise to 75% by the end of the current fiscal year ending March 2024.
The country’s gross debt is expected to rise from R4.8 trillion in the current financial year to R6 trillion in 2025/26 as the country needs to borrow an average of R553bn per year over the medium term.
The main budget deficit forecast for 2023 has worsened to 4.9% of GDP, compared to the 4% estimated in the February budget.
Over the next three years, debt-servicing costs as a share of revenue are expected to increase from 20.7% in 2023/24, to 22.1% in 2026/27.
North West University Business School economist Professor Raymond Parsons said fiscal space had now shrunk markedly.
Parsons said a strong combination of weak growth, rising debt and excessive spending had posed serious risks to the fiscal outlook, thus the bar would be set high for the main Budget next week.
“The 2024/25 Budget needs to embody tangible outcomes that build credibility against a background in which fiscal targets have consistently been missed,” Parsons said.
“SA is already at the outer limits of what it can reasonably do to curtail its debt burden and stabilise its public finances. This is where the big challenge now lies in the aftermath of the Sona and for SA’s future risk premium.”