Finance minister Enoch Godongwana has warned that South Africa could run out of money by March unless government reigns in its spending.

Speaking at the Kgalema Motlanthe Foundation’s annual Inclusive Growth Forum, Godongwana said budget cuts would initially not be too severe as he would increase borrowing.

However, he also lamented South Africa’s debt situation.

“What has happened to public debt? It’s about R4 trillion, it’s massive,” he told delegates.

“What that means is that with every rand that we collect, about 18c goes into servicing debt. A complicating factor is that our costs of borrowing have been rising, for a number of reasons.”

Those reasons include rating agencies downgrading South Africa’s sovereign debt to junk status and the Financial Action Task Force placing South Africa on its “grey list”.

Godongwana said another issue caused by rating agency downgrades is that foreigners stopped buying South African government bonds.

“The problem with debt is not its size; it’s the capacity of the economy to service it,” the finance minister stated.

“In this environment, our ability to service that debt is becoming constrained, and therefore, we’ve got to do something about it.”

He explained that revenue had fallen due to various compounding factors, especially load-shedding and U.S. ambassador Reuben Brigety’s allegations that South Africa supplied Russia with weapons.

“Which means I don’t have money,” said Godongwana.

Citing Reserve Bank data, Godongwana warned that declining revenue and ballooning expenditure would lead to the country running out of money.

“If we project the loss of revenue over the next few months up to the beginning of the year, we’re going to have a serious challenge,” he stated.

“Parallel to that, expenditure is growing. I’m losing revenue on this side; expenditure is growing that side. I’ve got to find a balance.”

Godongwana said the delegates in the room faced a critical challenge.

“We [as South Africans] are becoming poorer if you look at GDP per capita,” he said.

“The key challenge — probably for this room and everybody here — is how we are going to reverse that trend.”

Godongwana’s statements come after President Cyril Ramaphosa downplayed economists’ warnings that the South African government had run out of money.

Ramaphosa said Godongwana had provided the ANC National Executive Committee (NEC) with an update on the country’s fiscal situation.

“The ANC NEC is reassured that South Africa is not running out of money,” Ramaphosa stated.

Both the president and finance minister have pushed back against calling the necessary budget cuts what they are — austerity measures.

“Instilling discipline is as important as taking decisive steps to grow the economy. Fiscal discipline is not the same as imposing austerity measures that will undermine our developmental agenda,” he said.

“Accordingly, the NEC encourages the government to continue with the implementation of structural reforms, particularly in the areas of energy and logistics.”

Ramaphosa said South Africa’s financial pressures stem fundamentally from an economic challenge of slow growth and increasing unemployment.

Godongwana is under pressure to find the money to continue paying South Africa’s R350 “social relief of distress grant” and supply public sector workers with a wage increase leading into next year’s elections.

Simultaneously, many of South Africa’s failing state-owned entities are seeking bailouts, including the SABC and the Post Office.

The finance minister specifically highlighted Transnet, whose ailing rail and port infrastructure directly impacted tax revenue as major producers sat with truckloads of commodities they were struggling to export.

As Godongwana’s budget policy statement approaches, reports have begun surfacing that he could float the idea of drawing from the R459-billion Gold and Foreign Exchange Contingency Reserve Account (GFECRA).

Citing well-placed insiders, Business Times reported that Godongwana would likely acknowledge the reserve account during his policy statement.

However, he would only confirm whether government would use it in his budget speech in February.

The report said Godongwana met with National Treasury and the Reserve Bank to discuss the implications of drawing from the account.

Debate over whether government should draw on the fund comes after dozens of economists, academics, finance professionals and civil society organisations wrote an open letter to Godongwana urging him to do so.

However, Reserve Bank deputy governor Rashad Cassim has warned that using the reserve account has major cost implications.

“It is important to emphasise that the GFECRA balances are not a windfall that can be enjoyed with no further costs,” Cassim explained.

This is because GFECRA drawdown amounts were unrealised gains that could fluctuate wildly with the exchange rate.

“Distributing these profits without selling foreign exchange reserves would entail monetisation of the balances, which implies substantial liquidity management costs for the Bank.”

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