Finance Minister Tito Mboweni has detailed government’s strategy to save South Africa’s economy and avoid a sovereign debt crisis.
He explained in his Medium Term Budget Speech that the economy is predicted to decline by 7.8% this year.
Mboweni put forward a five-year fiscal consolidation plan that he said promotes economic growth bring South Africa’s ballooning debt under control.
The revised fiscal framework as outlined in his plan will put South Africa on a course to stabilise the ratio of debt-to-GDP at around 95% within the next five years.
“The stock of gross debt will rise from roughly R4 trillion this year to R5.5 trillion in 2023/24,” said Mboweni.
Mboweni added that the medium-term fiscal strategy will narrow the main budget primary deficit from an expected R266 billion in 2021/22, to R84 billion in 2023/24, with a surplus planned for 2025/26.
If the strategy is successful, the South African economy would grow by 3.3%, 1.7%, and 1.5% over 2021, 2022, and 2023 respectively.
How the plan will work
One of the key areas that Mboweni seeks to drive an improved economy is through a three-year wage freeze for the public sector.
Treasury said in documents related to Mboweni’s speech that government proposes growth in the public service wage bill of 1.8% this year and an average annual growth of 0.8% over the 2021 Medium Term Expenditure Framework period.
“To achieve these targets, which are essential for fiscal sustainability, government has not implemented the third-year of the 2018 wage agreement,” the National Treasury said.
“Furthermore, the Budget Guidelines propose a wage freeze for the next three years tosupport fiscal consolidation.”
“Notwithstanding that the matter is before the labour court, government is actively engaging with labour unions to find a solution to a more sustainable cost of employment.”
Options that could be explored are listed as:
- Harmonising the allowances and benefits available to public servants
- Reconsidering pay progression rules
- Reviewing occupation-specific dispensations.
Additionally, main budget non-interest spending is set to be reduced by R60 billion in 2021/22, R90 billion in 2022/23, and R150 billion in 2023/24.
The largest share of these reductions falls on compensation, while other non-interest spending items will also be reduced.
Additionally, the plan proposes tax increases of R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24, and R15 billion in 2024/25.
Shutting down corruption
Mboweni noted in his speech that the COVID-19 pandemic opened up new opportunities for corruption.
“The COVID-19 pandemic has given rise to shameful and exploitative acts of corruption. This has overshadowed our collective achievements in saving lives and supporting livelihoods,” said Mboweni.
“The National Treasury has withdrawn the emergency procurement instruction note and required all state bodies to revert to normal procurement processes,” Mboweni noted.
“Procurement is now slowed down due to a few scoundrels who put themselves ahead of the country, and we must all suffer.”
However, he said that it is not true that the R500 billion relief package has been entirely lost to corruption.
“It is being used to cushion the impact of the pandemic and aspects will continue to be rolled out over the medium term, particularly the Presidential Employment Programmes,” he explained.
Mboweni noted that SARS is working with law enforcement agencies to evaluate R3.5 billion worth of tenders that had been awarded to groups that were not registered for VAT.
“We must continue to defeat the corrupt and plug the loopholes. Efforts to support a rapid response to COVID-19 underline the need for comprehensive procurement reforms,” said Mboweni.