There is a plan to save South Africa’s finances – but it doesn’t play well with politics

National Treasury wants to cut South Africa’s spending – but political interference could see the country’s coffers come under even more strain.
Data from the Treasury last week showed that the budget deficit for July stood at R143.8 billion, the highest level since 2004 and well above the R115 billion prosecuted by economists. This was exacerbated by a decline in tax collection revenue.
South Africa’s fiscal deficit for 2023 is set to be far higher than the 4% Finance Minister Enoch Godongwana predicted, with it set to be between 6% and 6.5% of GDP.
The minister is aware of the financial problems facing the country, and a draft document has called for severe cuts to government spending. This includes:
- Freezing the hiring of new employees, except where an offer of employment has already been made or approved by the National Treasury and the Department of Public Administration and Services (DPSA).
- Freezing the advertisement of the procurement of all infrastructure projects unless approved by the Treasury.
- Reduce non-essential travel unless funded by non-government resources.
- Freeze spending on catering, workshops and conferences, and other related goods and services that have not been contracted.
- Ensure that the recommendation of spending reviews is fully implemented by 31 March 2024 unless otherwise agreed with the Treasury.
Polticial interference
RMB Chief Economist and Head of Research Isaah Mhlanga said that Treasury’s intentions to cut spending could face pressure from politicians as the country moves into a volatile lead-up to the 2024 elections.
“The biggest constraint to ensuring that Treasury’s spending recommendations are fulfilled is the
political cycle. The country is headed to national and provincial elections in 2024,” Mhlanga said.
“During elections, political leaders find it difficult to cut spending, especially current spending … This suggests that the National Treasury is likely to experience political resistance to its spending cut
proposals.”
These concerns have seemingly been affirmed by President Cyril Ramaphosa, who said this past weekend that a cut in spending is “not necessarily” the answer to the country’s financial problems, despite the decline in revenue.
“The revenue projections that we had have been lower than what we had anticipated. That immediately tells you that we are going to have headwinds,” Ramaphosa said.
“What should we do? The discussion is ongoing. It is not necessarily cutting spending; it is seeing how best you focus on your key delivery areas.”
Mhlanga said that the main area where government resistance will be intense is in regard to the R350 Social Relief of Distress (SRD) grant, which is not budgeted for beyond March 2024.
“The prudent decision will be to let it expire and not extend. Simultaneously, this will be an opportunity for Treasury to clearly outline fiscal rules or principles on the treatment of emergency spending and tax windfalls,” the economist said.
“However, this is unrealistic given that 2024 is an election year. Thus, as an assumption, the SRD will be extended indefinitely.
“If Treasury succeeds in letting the SRD grant expire, it will be an upside surprise.”