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Finance Minister Enoch Godongwana has warned of tough decisions come the medium-term budget policy statement on Wednesday, adding that there is a risk that the government will run out of money if no action is taken.
This is according to a Sunday Times, which reported Godongwana’s sentiments towards the fiscus during his address at the Kgalema Motlanthe Foundation annual Drakensberg inclusive growth forum this weekend.
The finance minister, as well as the National Treasury, have noted recently that pressure on household spending, business investment, export revenues and the cost of imports have all resulted in weaker-than-expected tax income. As a result, both the Minister and Treasury targeted government spending to taper off the widening budget deficit.
On Friday, Godongwana said in addition to localised problems, the Lady R scandal had also affected the economy as “everybody became scared that we’re likely to have secondary sanctions.”
“Markets tightened, and even on the borrowing side … there’s less revenue. That’s my pain,” said Godongwana. Godongwana said this had happened while spending was growing. The Treasury would have to find a balance, he said.
The National Treasury, therefore, recently proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap – including a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.
These measures weren’t received lightly by many public stakeholders, with some saying “Chaotic budget cuts” are not the answer to the shortfall between tax collections and government spending.
However, Godongwana over the weekend said the cuts would not be as severe as initially expected because the government would have to borrow more funds, but there must be some cut in spending.
He told delegates at the forum that unless spending cuts were introduced, the government ran the risk of running out of money by March next year.
“The intensity of load-shedding has been more pronounced, logistics have become much more difficult … from the first quarter revenue [has been falling] … which means I don’t have money,” he said.
The Treasury said total revenue growth was 8.7% year-on-year in August, while total expenditure grew at a stronger pace of 9.2%. The cumulative main budget deficit in the first five months of the 2023/24 fiscal year amounts to R238.4 billion, or R254.4 billion, including Eskom debt relief.
This is much higher than the deficit of R160.7 billion in the same period in 2022/23. South Africa’s current debt-to-gross domestic product (GDP) ratio is 73%. The situation is set to become much worse as the country’s fiscal deficit this year will be around 6% of GDP.
The minister said that the government remains committed to prudent fiscal management and addressing these challenges to ensure the financial stability of the nation.
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