CURBING RAMPANT DEBT

Last week, finance minister Nhlanhla Nene said he would engage on a new bill that aims to slam the brakes on SA’S runaway debt. It is vital he does

If you look at the staggering level of debt in SA, and how much it is costing to service that debt, it is clear that we need to think in more innovative ways about finding a solution The cold facts are alarming: national debt, measured as net loan debt, is set to balloon to a staggering R3.03 trillion — 52.2% of GDP — by 2020/2021.

This makes it clear that our fiscal policy, which aims to stabilise debt, has been a failure.

It means that by 2021, the country will be paying a staggering R214bn just in interest on our national debt. That would be R120bn more than we’re spending on higher education this year; R115bn more than we’re spending on police services; and R8bn more than we’re spending on health.

The picture is clear: finance minister Nhlanhla Nene is drowning in red ink.

So what is the solution? Well, I have written to parliamentary speaker Baleka Mbete to give notice of our plan to introduce a private members bill, under section 73(2) of the constitution, entitled the Fiscal Responsibility Bill.

This would be the first statutory “fiscal rule” proposed in SA that aims to stabilise national debt.

This bill will provide for:

● A fiscal rule prescribing that, for each financial year from 2019/2020 to 2022/2023, net loan debt as a percentage of GDP must not be more than it was the previous year. In other words, if that loan debt amounted to 50.3% of GDP (as it did last year) then that is the limit within which debt must be kept the next year;

● A review of the fiscal rule by parliament’s national assembly every four years, beginning in 2023/2024, which allows it to either amend, renew or terminate that rule;

● An annual fiscal responsibility report to be tabled by the finance minister at the same time as the budget, setting out whether the fiscal rule was complied with or not, together with reasons for those outcomes. If the plan has failed, there should be a recovery plan for how to get it back on track; and

● Finally, because SA is a small open economy vulnerable to shocks, the Fiscal Responsibility

Bill will also provide for an exemption from the fiscal rule to be granted in respect of a specific financial year, or years, by parliament, if the finance minister requests it, based on sound reasons and supported by the standing committee on finance.

We see this bill acting as a “legislative handbrake” that will force the executive to stabilise the level of debt in SA.

Had this rule been in place last year, former finance minister Malusi Gigaba would not have had the discretion to deliver his now infamous “kamikaze” mediumterm budget policy statement in October. That announcement blew up the budget and risked a catastrophic full-blown sovereign credit ratings downgrade to junk status, which we narrowly avoided.

A nonpartisan issue

As it stands, we must accept that there is a question mark over whether we can actually limit our debt to 53.2% of GDP by 2023/2024, given the spending pressures we face. But, even if it does, we will still be spending a staggering R277bn on interest on that debt in 2023/2024 — R30bn more than we’ll spend on basic education this year.

Last week in parliament, when we pitched this idea, Nene said he was committed to “engage on the matter”. We’re encouraged by that and hope the bill will now be given serious consideration.

We hope everyone — including political parties, business, trade unions, civil society and the public — will embrace the move. The consequences of not supporting this bill will be watching a greater chunk of taxpayer money frittered away on paying interest on our debts. At this critical point in our history, we can’t afford that.

By 2021, the country could be paying a staggering R214bn just in interest on our national debt