Increasing debt hampers efforts to change SA for the better
Finance Minister Tito Mboweni may have delivered one of the toughest Budgets in the democratic dispensation, but he signalled some of the tough choices the government is making to get things back on track.
The debt to GDP has been escalating in the last few years, and is now close to breaching the 90% mark. This is bad news for any country. But Mboweni said that despite the debt being expected to grow from 80% to 88.9%, they would be able to contain it to avoid reaching the 95% that was projected a few months ago.
It means this is an opportunity for the government to borrow less. If debt is stabilised at 88.9% in five years, there is hope that more money could be saved for critical projects.
Debt stabilisation has been one of the serious concerns of the markets and opposition parties over the years.
Debt service costs are now the fastest-growing expenditure items in the Budget after education and social security. Mboweni said that good tax collection had enabled the fiscus to balance the books.
When he assumed office almost three years ago, Mboweni said national debt must not exceed 30% of GDP. If that happened it would be a recipe for disaster.
South Africa has over the past few years been warned to manage its public purse prudently and to cut the frills.
The increase in debt has, however, been hampering efforts to rein-in expenditure and other cuts to manage public finances.
If the country borrows less it would be able to save some of the cash for some of the necessary projects including fixing dilapidated schools, upscaling infrastructure projects and creating more employment opportunities for the youth.
But Mboweni is also sitting with another headache – of dealing with the public sector unions after he announced that he would trim the wage bill by R300 billion in the next three years. This comes with another issue still on the table. The unions are still fighting the wage freeze of 2018.
Mboweni said Public Service and Administration Minister Senzo Mchunu would negotiate with the unions on the new agreement.
These are tough times and Mboweni is trying to find a balance.