Finance Minister Tito Mboweni Picture: GCIS
Finance Minister Tito Mboweni Picture: GCIS

Mboweni forges ahead on zero-based budgeting as debt looms large

By ANA Reporter Time of article published Jun 24, 2020

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Parliament – Finance Minister Tito Mboweni on Wednesday signalled in a special budget prompted by the Covid-19 pandemic that he was moving South Africa to zero-based budgeting to contain debt that was spiralling to 81.8 percent of GDP and threatening to implode the country's finances.

Mboweni said as a result of the global health crisis, the budget deficit would more than double to 15.7 percent of gross domestic product (GDP) in the current financial year, the revenue shortfall would reach R300 billion (US$17.2 billion) and the country's debt burden would soar from 65.6 percent to 81.8 percent of GDP or R4 trillion.

The minister, delivering the historic budget review via video link, confirmed that the economy was set to shrink by 7.2 percent, the largest contraction in 90 years. 

The budget, the first of its kind tabled in South Africa, revises spending to account for the emergency steps taken by the state to combat the virus and counter its economic impact. 

It shuffles the allocations made in the main 2020 national budget in February, before the virus reached South Africa, to give a further allocation of R12.6 billion to services at the frontline of South Africa's response to the health crisis.

The review also allocates an additional R3 billion to the troubled Land Bank, but provides for no new allocations to the country's struggling state-owned enterprises, with Mboweni issuing a stern reminder that they are expected to put their houses into order. 

Notably, he declined to answer any questions about South African Airways at a media briefing directly after his speech, which came on the eve of a crucial vote by creditors on whether to liquidate the national carrier or attempt to resuscitate it.

Mboweni also moved a greater share of the national budget, some R11 billion, to local governments as he pointed out that these were at the coal face of the response to Covid-19, which has infected more than 100 000 South Africans and counting.

"Taken together, the measures and adjustments we present translate into a consolidated budget deficit of R761.7 billion, or 15.7 per cent of GDP in 2020/21. 

"This is compared to the deficit of R370.5 billion, or 6.8 percent of GDP projected in February," he told the National Assembly.

Revenue collection was forecast to reduce from R1.43 trillion to R1.12 trillion in 2020/21.

"That means that we expect to miss our tax target for this year by over R300 billion," the minister said.

Mboweni stressed that South Africa's worst economic risk was its rising debt levels and said these were driven further north by the global health crisis. 


This was evidenced by the fact that total consolidated budget spending, including debt service costs, would for the first time ever exceed R2 trillion. Debt was expected to stabilise at 87.4 percent of GDP in 2023/24.

Mboweni said it was placing an unconscionable burden on future generations and taking South Africa to the brink of a sovereign debt crisis if left unchecked

"Debt is our weakness," he said, adding that out of every tax rand, 21 cents would now go towards servicing debt.

"If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth," Mboweni said.  

"So today, with an eye on the future, we set out a strategy to build a bridge to recovery. It is eating our children’s inheritance. We need to stop it now!"

The director-general of the National Treasury, Dondo Mogajane, stressed at the media briefing that the government's fundamental response to the economic crisis had to be nurturing growth, and avoiding debt exceeding 100 percent of GDP.

Mboweni turned to the book of Matthew in the Bible to explain that the government was opting for the narrow path of recalibration and containment. 

This would entail constraining public sector wage increases to an "affordable level", he said, and in a nod to the political battle that this suggests wished the minister of public service well in talks with labour.

The minister said the government would find spending cuts of R230 billion over two years to reach debt stability within four years. The government had agreed to aim towards achieving a primary surplus within the same timeframe, he said.

Mboweni, who has at times during the past three months openly disagreed with Cabinet decisions affecting the economy, appeared emboldened as he said the National Treasury would use the medium-term budget policy statement in October to "pilot" zero-based budgeting.

"This means that we will try to reduce all expenditure that we thought we can no longer afford. After all, we are not as rich as we were 10 years ago… a fiscal reckoning looms. The public finances are dangerously overstretched," he cautioned. 

"Through this gate, we reduce our reliance on borrowing. We feed the hungry. We look after the sick. We educate our people. We build for the future. We spend with wisdom, and we jail those who loot."

Mboweni said the new approach would require tax measures totalling R40 billion over the next four years. The new taxes would be announced next February.

The minister also dismissed suggestions that he was encountering political uphill from the left within the ANC as National Treasury tried to secure a US$4.2 billion loan with the International Monetary Fund to shore up its R500 billion response to the coronavirus. 

Mboweni described the protracted talks with the Washington-based institution, seen as a threat to national sovereignty by some in the ruling party, as "tough" and "difficult" but said a proposal was now awaiting a decision by the IMF board.

The negotiations would never have reached that stage had he not had backing, he insisted, adding that a positive outcome was likely to pave the way for assistance from the World Bank as well.

African News Agency (ANA)

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