‘We are heading towards a debt trap,’ Mboweni warns

Tito Mboweni will on Wednesday afternoon deliver a crucial medium-term budget policy statement.
Image: Esa Alexander

South Africa is set to spend more to service its debt than it does on health care.

Figures contained in the medium term budget tabled by finance minister Tito Mboweni, show consolidated government expenditure will reach R6.3 trillion over the next three years, of which a staggering R796bn will be going towards servicing the country’s debt, which is now at R3 trillion and will balloon to R4.5 trillion in the next three years.

As tax revenue falls and expenditure increases – driven by bailouts to struggling state owned entities – national debt is heading in excess of 70% of GDP.

“On our current trajectory, by the end of the three year-framework, debt service costs will be bigger than spending on health and economic development,” Mboweni said in his speech.

Mboweni warned that South Africa will get caught in a dept trap if urgent and drastic costs cutting measures are not put in place.

“The consequences of not acting now would be gravely negative for South Africa. Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap. The unemployment crisis will worsen, and government debt could balloon. This is an outcome we are determined to avoid,” he said.

Low economic growth, tax revenue shortfall, increased bailouts to struggling state owned entities and a runaway public sector wage bill have been cited by National Treasury as key contributory factors to rising debt levels and widening of the budget to 6.2%.

The consequences of not acting now would be gravely negative for South Africa.

Tito Mboweni

Eskom remains the biggest risk to the economy as it’s R450bn in the red. The power utility, which will be broken into three separate units – generation, transmission and distribution – will receive R230bn in government support over the next three years, mainly to service its debt.

Economic growth is forecast at 0.5% in 2019, gradually rising to 1.7% in 2022; while a tax revenue shortfall of R52.5bn in 2019/20 and R84bn in 2020/21 is forcing government to borrow more to meet its financial obligations.

Ratings agencies are watching Mboweni closely, on the eve of deciding if South Africa should be downgraded to subinvestment or junk status. Education and social grants receive the lion’s share of funds as they account for 48% of all government expenditure.

According to the medium-term budget, government spending has been adjusted upwards by a further R23bn since the main budget in February, but this will decrease to R8.2bn by 2020/21.

Addressing journalists just before delivering his speech in the National Assembly, Mboweni hinted that he was in favour of ditching the October medium term budget policy statement in favour of presenting the main budget only in February.

“I’m quite convinced that the time has come for us to re-evaluate the efficacy of this approach,” he said, adding that a review of whether it was working or not had not been done since the MTBPS was introduced in 1997.

He said the debt-to-GDP ratio was of major concern as it should be hovering around the 30% mark, or ideally be at zero. He listed a number of “fiscal leakages” or wastage which he said National Treasury was clamping down on with a raft of cost saving interventions. Among these are, banning government from issuing civil servants with cellphones which cost around R5bn per year, containing the wage bill through lower than inflation increases and reviewing occupation specific dispensation allowances; freezing the salaries of ministers, MECs and Mayors and forcing them to travel economy class on local trips.

Government has identified spending reductions of R49.5bn over the next two years, but is looking at others areas where fat can be trimmed as it targets a spending reduction of R150bn by 2023.

“Our problem is that we spend more than we earn. It is as simple as that,” Mboweni told

BY CAIPHUS KGOSANA

TimesLIVE

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