Ramaphosa delivers sobering message on South Africa’s finances

Finance minister Tito Mboweni’s budget presents a sobering assessment of the state of South Africa’s economy, says president Cyril Ramaphosa.

Writing in his weekly open letter to the public, Ramaphosa said that the figures make it plain that unless the country acts to turn things around, there will be even more difficult times ahead.

“Put simply, we are spending far more than we are earning.

“As a result, we are borrowing more and more, and the cost of servicing that debt is rising. In fact, debt service costs are now the fastest-growing area of expenditure. We spend more on debt repayments than we do on health; only education and social development get more.

“This position is precarious and unsustainable. We need to make significant changes and we need to make them now,” the president said.

Why South Africa is in trouble

Ramaphosa said that there are several reasons for the country’s current position.

“Our economy has not grown much over the last decade, mainly due to the 2008 global financial crisis and a decline in demand for the minerals that we export.

“As a result, revenue collection has been weak and we have had to borrow more to sustain spending on development, infrastructure and wages. At the same time, state capture and corruption has affected governance, operational effectiveness and financial sustainability at several public institutions, including state-owned enterprises (SOEs).”

He added that efforts over the last two years to revive the economy and rebuild institutions have now been undermined by the electricity crisis, further constraining growth and placing an additional burden on public finances.

“Our priorities in this budget therefore are to put the economy back on a path of growth, constrain public spending and stabilise our debt,” he said.

Wage bill 

Ramaphosa said that over the next three years, the government expects to achieve savings of around R261 billion by cutting the budgets of several departments and reducing the rate at which the public service wage bill increases.

At the same time, Ramaphosa said the government will need to spend more to support the restructuring of SOEs like Eskom and SAA.

A large part of the savings will come from reducing the rate at which our wage bill grows, he said.

“Our approach is not to dramatically cut the size of the public service, but to examine the rate at which wages grow. Public service wages have on average increased at a much higher rate than inflation over many years, and we need to fix this if we are to get public finances under control.

“This also applies to the management of people’s personal finances, where if any expenditure item that rises at a rate more than inflation – be it electricity tariffs, mobile tariffs or food – will always put any individual person’s budget and finances under strain and out of kilter.”

Ramaphosa noted that the wage bill remains the largest component of spending by economic classification.

“Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery.

“The public service wage bill is by no means the only area where we are cutting costs. I have decided that there will be no increase in the salaries of senior public office bearers this year.

“This follows a reduction in benefits stemming from changes to the Ministerial Handbook. We will publish a new law this year introducing a remuneration framework for public entities and state owned companies to prevent excessive pay for board members and executives,” he said.

Read: South African taxpayers are footing the bill for massive government salary hikes: report

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Ramaphosa delivers sobering message on South Africa’s finances