Finance Minister Tito Mboweni has announced that the country’s debt crisis has finally reached an all time high of R3 trillion and if nothing is done about it will increase by to R4.5 trillion over the next three years.
Delivering the medium term budget policy statement in Parliament today, Mboweni said serious intervention was needed to trim the debt.
The national debt, which this year exceeded the R3 trillion mark, is also expected to increase by 50% over the next three years and mostly likely reach more than 70% of GDP in 2022/23 financial year.
“This year, the national debt exceeded R3 trillion. It is expected to rise to R4.5 trillion in the next three years,” Mboweni said.
He pointed out that the bleak situation would force the government to make difficult decisions, which may include slowing growth in wages and imposing additional revenue measures, essential managing the government’s salary costs and finding more ways of generating revenue.
“The consequence of not acting now would be gravely negative for South Africa. Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap. The unemployment crisis would worsen, and government debt could balloon. This is an outcome we are determined to avoid,” he said.
Mboweni said this year’s consolidated budget deficit is projected at 5.9% of GDP in the current year. Last year’s projection, which was also off the mark, was 3.6% but was eventually estimated at 4%.
Economic growth is projected to be 0.2% less than last year’s estimate of 0.7%, which at the time was based on the fact that the economy had just experienced a technical recession.
“The economy is now forecast to grow at 0.5% in 2019 compared with the 1.5% expected in February. Growth is projected to slowly rise to 1.7% in 2022, supported by household consumption and private-sector investment.”
With Sars now projected to collect less than it did last year, Mboweni said revenue forecasts were now more cautious.
“We now expect to collect R1.37 trillion this year. This is R53 billion, or 4%, less than we expected. Looking ahead, our revenue forecasts are prudent. We assume an elasticity of one, which means a one to-one relationship between growth in taxes and economic growth, after adjusting for tax measures,” he said.
More money for ‘expensive money’…
Government expects to be paying more for its borrowed money with projections expecting the service costs to exceed expenditure on some of the key priority area such as health in three years’ time.
Mboweni said with the budget deficit averaging 6.2% of the GDP, the country must expect to spend at least more to service its loans.
‘The consolidated budget deficit averages 6.2% of GDP over the next three years. Debt and debt-service costs will continue to increase, with the debt-to-GDP ratio now estimated at 71.3% in 2022/23,’
Credit growth, Mboweni said, has been on the up since last year with the private sector credit extensions rising up to 6.2% last month while there has been a significant home loans which grew 5% year on year.
Mboweni admitted that the economy is still looking very bleak and but summarised the problem as government spending more than it makes in revenue, a problem, he said, would be tackled by employing debt stabilisation measures.
“Our problem is that we spend more than we earn. It is as simple as that. To stabilise debt, government will target a primary balance by 2022/23. The target measure excludes support to Eskom, because that is part of a separate process,” he said.
Since his last budget in February, treasury has had to pump R26 billion into Eskom, R11 billion to state-owned companies and R430 million infrastructure for student housing, funds Mboweni said have had to be drawn from partly from the contingency reserve, provisional allocations as well as declared unspent funds carried over.
Dividing the cake…
Mboweni said government is set to spend R6.3 trillion over the medium term and R3 trillion of that will go to three priority areas, namely, education, social development and health.
“Approximately half of non-interest spending goes to national government, and the other half to provinces and municipalities. We have achieved many social gains over the past 25 years. Our social spending programmes can be sustained over the long-term provided we make reasonable and prudent choices. On our current trajectory, by the end of the three-year framework, debt service costs will be bigger than spending on health and economic development.
Mboweni also tabled, together with the medium term budget policy statement, seven other bills, namely Adjustments Appropriation, the Rates and Monetary Amounts, Amendment of Revenue Laws Bill, The Taxation Laws Amendment, the Division of Revenue Amendment Bill, the Tax Administration Laws Amendment and the 2019 Adjusted Estimates of National Expenditure bills.