South Africa’s finance minister critical of government spending

With debt service costs standing at 21 cents to the rand due to high expenditure items like the public sector wage bill, spending will remain restrained over the next three years, finance minister Enoch Godongwana said when he tabled his maiden mid-term budget at the National Assembly on Thursday (11 November).

Government expenditure has exceeded revenue in every year since  2008/09. In that time, the consolidated budget has grown from R712.8 billion in 2008/09 to R2.13 trillion in 2021/22 – an average increase of 8.8% each year. “Higher expenditure has not always been efficient or effective,” the finance minister said.

Much of the increase was absorbed by a rising public-service wage bill, averaging about 35 per cent of expenditure, he noted.

“The effectiveness of several large spending programmes is questionable, and state procurement systems often fail to deliver value for money.

“At the same time, debt-service costs will on average consume 21 cents of every rand collected in main budget revenue over the MTEF period. This crowds out spending on essential public services such as health, social development, and peace and security,” Godongwana said.

Elevated debt redemptions will further reduce fiscal space over the medium term as R423.4 billion of debt borrowed in previous years matures. In addition, the interest rate that government pays on its debt is higher than the GDP growth rate, said Treasury.

“In these circumstances, it is not possible to reduce the ratio of debt to GDP without running a primary budget surplus, as the stock of debt is increasing more quickly than the economy is growing,” it said.

In summary, “the position of the public finances is a brake on growth,” said the minister. “Committing to higher levels of spending in the absence of faster economic growth will further undermine macroeconomic credibility, with increasingly detrimental effects on the economy.”

Light at the end of the fiscal consolidation tunnel

The 2021 MTBPS reaffirmed the fiscal strategy set out in the 2021 Budget.  “Barring major new shocks or unbudgeted spending commitments, staying the course will lead to a primary fiscal surplus in 2024/25, bringing an end to fiscal consolidation at the end of the MTEF period,” Treasury said.

“Over the next three years, spending will remain restrained. Government will avoid permanent increases in departmental or programme baselines, or further bailouts of state-owned companies, which would compromise fiscal sustainability. Instead, short-term tax windfalls will be targeted to reduce the budget deficit and fund temporary priorities, such as extended support for poor households and public employment,” said Godongwana.

He reiterated that rising government expenditure has not been matched by higher economic growth, increased productivity, or greater efficiency.

“Over the medium term, government will use the results of recent spending reviews to implement zero-based budgeting. This will shift the budget process from an incremental approach to baseline funding towards a more  stringent approach that assesses programme effectiveness and realises greater value for public money,” the finance lead said.

Projected three-year change in debt-to-GDP  ratio, selected developing countries

Read: Government to announce grant changes in 2022, says South Africa’s finance minister

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South Africa’s finance minister critical of government spending