{"id":426746,"date":"2020-08-19T08:24:18","date_gmt":"2020-08-19T06:24:18","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=426746"},"modified":"2020-08-19T08:24:18","modified_gmt":"2020-08-19T06:24:18","slug":"the-r2-trillion-warning-for-south-africa","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/426746\/the-r2-trillion-warning-for-south-africa\/","title":{"rendered":"The R2 trillion warning for South Africa"},"content":{"rendered":"

The National Treasury has published<\/a> <\/strong>its Medium -Term Expenditure Framework (MTEF) Technical Guidelines which aim to provide public institutions with guidance on how to prepare their medium-term budget estimates for the 2021 Budget.<\/p>\n

The guidelines are primarily intended for national government departments and public institutions, and contribute to the budgeting process in provinces.<\/p>\n

Treasury said that since 2008\/09, there has been a large and growing gap between government spending and tax revenues, resulting in exponential growth in borrowing to fund the fiscal gap.<\/p>\n

In response, government has taken steps to reduce non-interest spending growth and raise tax revenue.<\/p>\n

“However, due to lower nominal GDP and revenue growth, these interventions have not stabilised debt. Debt-service costs continue to be the fastest growing area of spending, accounting for 21 cents out of every rand of government revenue raised in 2020\/21.”<\/p>\n

It added that over the last 12 years, the stock of government net loan debt rose six-fold from under R500 billion in 2007\/08 to nearly R3 trillion at the end of 2019\/20.<\/p>\n

Treasury said that Covid-19 has further exacerbated the precariousness of the public finances, which had already reached an unsustainable position before the pandemic.<\/p>\n

All sectors have experienced a sharp downturn and millions of jobs are at risk,while government has had to deploy a range of fiscal and monetary measures to address the adverse effects of the pandemic, limit the economic damage, and support recovery.<\/p>\n

A warning<\/strong><\/p>\n

Treasury said that South Africa’s current spending path implies that fiscal deficits will remain higher than 12% of GDP for the foreseeable future.<\/p>\n

This is a key reason for South Africa losing its investment-grade credit rating by all ratings agencies, it said.<\/p>\n

“Allowing fiscal buffers to weaken hampers South Africa\u2019s policy response to shocks, including the current pandemic, and government has resolved that this should be rectified going forward.”<\/p>\n

Such high deficits place enormous pressure on South Africa\u2019s financial sector and the real economy, it said.<\/p>\n

“With savings levels quite low, high government deficits will expose the country to higher borrowing risks, push interest rates upward and extract from growth through lower private sector investments.<\/p>\n

“In the event of a debt default or fiscal crisis, the National Treasury has estimated that this would cost the country at least R2 trillion in lost economic activity by the end of the decade<\/strong>.”<\/p>\n

Cuts<\/strong><\/p>\n

Treasury said that gross tax revenue for the 2020\/21 fiscal year has been revised down from R1.43 trillion to R1.12 trillion, which has created a R304.1 billion shortfall.<\/p>\n

It said that the 2021 MTEF aims to achieve\u00a0R230 billion in savings over the first two years, beginning with R90 billion reduction in overall non-interest spending in 2021\/22.<\/p>\n

The 2023\/24 baseline will carry through these measures, with the aim of achieving a primary surplus and stabilising debt in that year, it said.<\/p>\n

“If these reductions are not achieved, and fiscal consolidation is unsuccessful, government debt will exceed 100% of GDP in the medium-term.<\/p>\n

“This will signal the emergence of debt distress episodes as a vicious cycle of high borrowing rates and low growth leading to ever deeper debt spirals, lower investment and lower economic output.”<\/p>\n

Targeting sustainable public finances is also critical for maintaining policy flexibility and sovereignty, as harsher measures will be required by lenders of last resort, the group said.<\/p>\n

Hope<\/strong><\/p>\n

Despite this bleak position, Treasury said that\u00a0South Africa\u2019s economy is resilient and can be rebuilt and stabilised.<\/p>\n

“For the purposes of the medium-term, measures towards fiscal consolidation and debt stabilisation should be accompanied by a refocusing of spending from consumption to investment in strategic economic infrastructure,” it said.<\/p>\n

“The National Treasury in collaboration with departments will be undertaking spending reviews to contribute to the fiscal consolidation process.”<\/p>\n

In this regard, there should be no \u201choly cows\u201d and no spending items will be automatically protected from possible downward adjustments, Treasury said.<\/p>\n

\n

Read: ANC\u2019s plans for South African pensions, prescribed assets and land<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The National Treasury has published its Medium -Term Expenditure Framework (MTEF) Technical Guidelines which aim to provide public institutions with guidance on how to prepare their medium-term budget estimates for the 2021 Budget.<\/p>\n","protected":false},"author":10,"featured_media":410527,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[26],"class_list":["post-426746","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-government","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/426746","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=426746"}],"version-history":[{"count":11,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/426746\/revisions"}],"predecessor-version":[{"id":426802,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/426746\/revisions\/426802"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/410527"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=426746"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=426746"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=426746"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}