Finance Minister Enoch Godongwana has painted a sobering picture of the nation’s financial health – a country faced with mounting fiscal challenges with rising deficits and soaring government debts.
Godongwana was delivering his medium-term budget statement in parliament in Cape Town on Wednesday.
Projected budget
He said the country is now projecting a budget deficit of 4.9% of GDP (gross domestic product) for the current fiscal year, up from the previous estimate of 4%.
Meanwhile, the government has consistently spent more than it earns since the 2008 global financial crisis.
As a result, gross debt is projected to rise from R4.8-trillion in 2023/24 to R5.2-trillion in the next fiscal year, with an expectation to exceed R6-trillion by 2025/26.
Debt-service costs for the next year alone are estimated at about R385.9-billion, with a staggering total of R1.3-trillion over the medium-term expenditure framework.
He also stressed that the challenge is not just the rising debt levels but the crowding-out effect that debt-service costs have on essential social spending.
The economy’s inability to grow sufficiently to support increasing expenditures or current debt levels exacerbates the problem.
To address the economic crisis and mitigate risks, Godongwana unveiled a plan to implement austerity measures, which include reducing government spending, reshuffling priorities and taking steps to support economic growth.
Medium-term economic outlook
In his address, the finance minister acknowledged a multitude of factors contributing to South Africa’s economic difficulties.
He noted that the medium-term economic outlook remains fragile due to a combination of challenges including frequent power cuts, performance issues in the logistics sector, high inflation, rising borrowing costs and a less favourable global economic atmosphere.
“A joint plan to review government departments, entities and programmes over the next
three years is being prepared,” he said.
“This plan will address overlapping mandates and functions including in public entities,
and ensure that we create standards for more sustainable remuneration of executives
that serve public entities receiving transfers from the fiscus.
“We also intend to leverage this plan to better direct our scarce resources to priority
areas.”
