South Africa has hit its limit

National Treasury is reportedly proposing a host of extreme measures to get national departments and other spheres of government to cut spending as the country’s coffers have run dry.

Treasury data this week showed that the budget moved to a deficit of R143.8 billion for July, the largest since at least 2004 and wider than the R115.5 billion forecast by economists.

Economists are also sounding the alarm on the full-year outlook, with South Africa’s fiscal deficit for this year expected to exceed the budget set by Finance Minister Enoch Godongwana by some margin.

South Africa’s fiscal deficit for 2023 is set to be between 6% and 6.5% of gross domestic product (GDP) -much higher than the minister’s expected 4%.

In the budget, Finance Minister Enoch Godongwana said the government wants to stabilise South Africa’s debt level at 70% of GDP, but it has already increased to 72%.

As a result, South Africa’s debt situation has also worsened significantly, moving from a relatively modest R500 billion in 2006 to over R4.7 trillion in 2022. This is expected to hit R6 trillion by 2025, putting the country in a significant debt trap.

Similar warnings have emanated from the South African Reserve Bank, which raised red flags over the country’s growing deficits this week.

According to the Sunday Times, Godongwana is acutely aware of the fiscal problems the country faces, and in a draft document looking for solutions, is proposing huge cuts to spending, a moratorium on advertising new hires and forcing departments to find other means to fund wage increases.

The austerity measures would mark the first time since 2013 that the National Treasury took an official stance, and this is particularly notable as this would come ahead of a national election.

The document reportedly points to much lower-than-expected tax revenues as well, which exacerbates the funding crunch.

It was also reportedly recommended that the provinces introduce similar measures.

South Africa’s provincial governments and municipalities are in deep financial crises – with major metros having already run out of money and many others nearing collapse.

The City of Tshwane has run head-on into a battle with its municipal workers of wages, with the threat of being placed into administration now looming over its head.

Other metros, like the City of Joburg and the City of Ekurhuleni, are struggling to replace parts and do repairs to city infrastructure, with the latter announcing this week that it would have to stop the repair of traffic lights and instead replace them with stop signs as repair funds have run out.

Municipalities’ financial stresses are well known, with one of the most obvious markers being how indebted they are to power utility Eskom, where money owed has rocketed to R64 billion.

According to the Sunday Times, the measures could be implemented as soon as mid-September, lasting as long as needed to bring the budget under control.

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