Government needs to tackle the real causes of SA’s fiscal ills
As South Africa’s budget shrinks — thanks to corruption, irrational policies and incompetence — the National Treasury in its efforts at rightsizing runs the risk of cutting the wrong items, slashing the budgets of developmentally critical departments and services that are well-run, and using money for emergencies to cover the costs of current operations, as well as to pay salaries and debts.
Trimming budgets must be done strategically so that this does not add to state failure, lead to underdevelopment or choke economic growth. It must also not reward failing, mismanaged and corrupt departments and entities.
In fact, reducing the budgets of developmentally critical departments and agencies will undermine public service delivery, development and growth. However, the funds available to departments and agencies that are managed well were heavily reduced in the current budget.
The government continues to bail out failing state-owned enterprises (SOEs) without any requirement for better management, cleaner procurement systems or more credible turnaround strategies. Runaway SOE debt is merely transferred to the national balance sheet, while the government continues to guarantee new SOE liabilities. In this budget, the South African Post Office, Denel and Eskom were given state financial guarantees.
Since 2020, the government has given R325bn in bailouts to failing SOEs . However, none of these bailed-out entities have noticeably improved their services, become sustainable or convincingly tackled governance failures, incompetence or corruption.
For example, the education infrastructure grant has been reduced compared with last year, when inflation is taken into account. So too has the school infrastructure backlog grant. Health facility infrastructure grants have also been nominally cut.
The budget has not increased spending on growth-generation initiatives. Instead, it has used savings to finance continued spending, such as paying public sector salaries and bailing out failing SOEs. This means income will continue to decline and debt levels will rise.
Spending on nonfinancial assets, including infrastructure, has also been reduced. So too has the budget for public goods and services, such as policing, healthcare and economic development. Instead, money forked out for social welfare grants, interest payments on debts and public sector wages has been increased.
Gross debt in November last year was 77.7%, debt servicing costs are at 21.1% of revenue, and GDP growth is forecast to be a mere 1.3% this year.
Finance minister Enoch Godongwana has used R150bn from the Reserve Bank’s gold and foreign exchange contingency reserve account to reduce government borrowing. This is risky, because the reasons for high debt, low growth and low tax income are populist policies, incompetence-driven state failure and corruption — and there appears to be very little genuine appetite to tackle these.
The government must protect the country’s fiscal defences and take care not to use reserves meant for emergencies for public consumption. Departments and agencies that are run cleanly, efficiently and competently must not be penalised by having their budgets cut. Furthermore, money available for growth-enhancing initiatives must be safeguarded. If this is not done, South Africa will continue on a trajectory characterised by low growth, declining physical and social infrastructure, high debt, an onerous public sector wage bill and ballooning social welfare costs.
South Africa is in real danger of falling into the debt trap of many postcolonial African countries who borrow for consumption rather than put the money into investments that can stimulate growth. This means these countries accumulate debt but acquire no physical infrastructure and only limited social infrastructure, such as better education. These states also have no new industries or better levels of economic growth. At the same time, such governments do not tackle constraints on growth such as corruption, incompetence and nonsensical populist policies.
Finally, the real causes of low growth, low revenue, high debts and therefore budget shrinkage — corruption, irrational populist policies and incompetence must be tackled head-on.