Finance Minister Tito Mboweni has issued a chilling warning on the country’s runaway sovereign debt, saying it threatened to eat the inheritance of the country’s children with the debt not projected to be close to R4 trillion of gross domestic product (GDP) by the end of this financial year, up from the R3.56 trillion projected in the February budget.
Delivering a supplementary budget occasioned by the outbreak of the COVID-19 global pandemic, Mboweni said the country has accumulated far too much debt and that the economic downturn due to the Coronavirus will add more debt.
Mboweni said out of every rand paid in tax, 21 cents go to servicing debt.
“This indebtedness condemns us to ever-higher interest rates. If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth,” he said.
“Our Herculean task is to close the mouth of the Hippopotamus! It is eating our children’s inheritance. We need to stop it now!”
Mboweni tabled a revised total budget of R2 trillion rand, the highest in the country’s history, with most of the funds set aside to fight the spread of COVID-19. The country’s economy is expected to contract by 7.2%, which is the largest in nearly 90 years.
Mboweni warned that if the country doesn’t act on debt, debt-service costs would crowd out spending on education and other policy priorities.
“The results are devastating. Interest rates sky-rocket. Spending has to stop. Inflation takes hold and people grow much poorer. This is what happened to Germany in the 1920s, to Argentina and to Zimbabwe in the early 2000s,” he said.
The finance minister said the country would borrow $7 billion from international finance institutions including the International National Monetary Fund and World Bank.
Mboweni had been under pressure from ANC allies Cosatu and SACP not to allow the IMF and World Bank to use the loans to control the country’s policy direction.
Mboweni told journalists after the speech that they had “found each other” with the IMF team, which was expected to take the proposals to the executives of the global lender in July.
He said he had the support of the ANC leadership, which is why he had proceeded to engage the IMF.
“The critical thing is that as we approach the IMF and World Bank, nothing is done to undermine national sovereignty,” he said.
Mboweni proposed R21 billion to COVID-19 spending and a further R12 billion to front line services to fight against the virus.
He said the share of the budget increases to R790bn, the provincial share decreases from R649bn to R645bn and the local government share increases from R133bn to R140bn.