Gigaba paints grim picture of state of public purse with soaring deficit
FINANCE Minister Malusi Gigaba has revealed that the gross national debt will shoot up to R3.4-trillion or 60% of GDP by 2020 as government is forced to borrow more to fund its policy plans.
Presenting his medium-term budget policy statement in parliament yesterday, Gigaba painted a grim picture of the state of the country’s public purse stating that government was facing a budget deficit of R50.8billion next year, which was projected to rise to R89.4-billion by 2020.
Gigaba said government was faced with difficult choices in the three years as the economy was expected to grow 1.2% next year before peaking at a modest 1.9% in 2020 with little growth on the tax revenue base.
Tax revenue was projected to come in at R1.4-trillion next year before rising to R1.7-trillion by 2020, while government expenditure was expected to rise to R1.9-trillion in 2020, leaving a budget deficit of just over R225-billion.
This means government will in the next three years be forced to borrow more money to fund its spending plans, which would see the gross national debt rising to 60% of GDP or R3.4-trillion by 2021.
The national debt could climb even further should the government decide to forge ahead with its nuclear build programme in the next few years, which was estimated to cost more than R1-trillion.
But Gigaba said the country could not afford it at this stage, although it remained part of the country’s energy mix.
Debt service costs are expected to rise from R183-billion in 2018 to R223billion by 2021, making government loan repayments the fastest growing expenditure item at 11% of the budget. This means the government would in the next three years spend more money on paying its debts than on key service delivery areas such as education, social development and health services.
The education budget is expected to rise to around R400billion a year by 2020, social development by R286-billion and health by R235billion in the same period.
Gigaba said he was due to have a teleconference with credit rating agencies to discuss the country’s dire financial position as part of his efforts to avoid further downgrades in the national sovereign rating. Gigaba said given dwindling tax revenue, government would be forced to get rid of some its programmes and would only allocate new money to urgent and necessary policy interventions. “In this context, government faces difficult choices. To offset revenue shortfalls and reduce borrowing, the contingency reserve has been pared down to R16-billion over the next three years.
“This leaves little room to manoeuvre if risks to the expenditure ceiling materialise. Beyond this, it is likely that some programmes will need to be eliminated, or their funding reduced,” said Gigaba.
The finance minister acknowledged that the country’s public purse was inadequate to fund its social needs.
“South Africa’s state policy aspirations and its social needs far exceed available public resources. Moreover, there is little space for tax increases in the current environment.”
The salaries of public servants were expected to rise from just more than R580-billion in 2018 to R677billion by 2020.
“The public sector wage bill has increasingly crowded out other spending.”
Government has now set up a task team of ministers to come up with measures to rein in government’s run-away debt. — DDC
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