Debt, SOEs need urgent shift if South Africa is to recover, Treasury tells Parly

accreditation
0:00
play article
Subscribers can listen to this article
National Treasury director-general Dondo Mogajane said budget outcomes for the 2020/21 financial year showed a budget deficit of 11% of GDP.
National Treasury director-general Dondo Mogajane said budget outcomes for the 2020/21 financial year showed a budget deficit of 11% of GDP.
Gallo Images
  • National Treasury director-general Dondo Mogajane said budget outcomes for the 2020/21 financial year showed a budget deficit of 11% of GDP.
  • National Treasury chief director and acting head of the budget office Edgar Sishi said debt has become the second largest item of spending and will soon become the largest.
  • Deputy Minister of Finance David Masondo said state-owned entities continued to pose a threat to the fiscus as well as to economic recovery.

National Treasury director-general Dondo Mogajane told Parliament's Standing Committee on Appropriations that while government was confident in the ability of Operation Vulindlela to place South Africa on the path to economic recovery, unsustainable debt levels remained a threat.

National Treasury briefed the committee on Wednesday morning in a virtual meeting, following a series of economic ructions, including the Covid-19 national lockdown and July's unrest which destroyed businesses in Gauteng and KwaZulu-Natal.

Operation Vulindlela is a "delivery unit" established to expedite key government interventions aimed at bolstering structural reforms including stable energy supply, reduced data and communications costs, freight and logistics overhaul, sustainable water supply and a modernised visa regime.

The unit is a central feature to President Cyril Ramaphosa's policy approach and is a lasting legacy of former finance minister Tito Mboweni's time at National Treasury.

However, instances like Minister of Mineral Resources and Energy Gwede Mantashe amending rules for 100 MW generation licence exemptions and the adversarial public service wage talks add uncertainty to Treasury's plans to get South Africa's finances up to snuff.

Attention will shift to Minister of Finance Enoch Godongwana's medium-term budget policy statement in October to see how he will balance this function with South Africa's most urgent fiscal challenges.

National Treasury told the Standing Committee on Appropriation that while it monitored the progress of Operation Vulindlela, South Africa needed state-owned entities and government departments to function more efficiently for the unit to yield results.

Mogajane said outcomes for the 2020/21 financial year showed a budget deficit of 11% of GDP or R552 billion, characterised by high government spending and higher debt as South Africa growth failed to lift.

"Structural reforms are essential for growth momentum rather than higher deficits and further accumulation of debt. Fiscal consolidation necessary to avoid a debt or fiscal crisis," said Mogajane.

Mogajane said GDP, expenditure and deficit were much worse than the 2020 budget estimates, highlighting the deleterious effect of the Covid-19 pandemic on the public finances and the economy.

"Nevertheless performance was slightly better than expected at 2021 Budget. Compared with 2020 Budget estimates, the main budget deficit was worse than expected by R183.9 billion or 4.2 percentage points of GDP," Mogajane said.

National Treasury chief director and acting head of the budget office Edgar Sishi told the committee that debt has become the second-largest item of spending and will soon become the single largest item of spending by the South African government.

"Our debt has, as indicated in the past [few] budget tablings and the special adjustment budget in June last year, has increased quite dramatically in the past few years. We are sitting on a level of debt that is just under 80% of GDP.

"To put it in rand terms we owe about R4 trillion to various lenders around the world. This debt attracts interest costs and the cost of servicing this debt now runs into the hundreds of billions of rands," said Sishi.

Sishi said in 2021, government is expected to spend R270 billion just on the cost of servicing debt and will have to be paid before anything else in the fiscus is given attention. He said the contingent liability was expected to reach R1 trillion by next year.

Deputy Finance Minister David Masondo said state-owned entities continued to pose a threat to the fiscus as well as to economic recovery. He said South Africa cannot continue to support SOEs that undermine economic recovery and will cut ties with such entities if needed.

Get the biggest business stories emailed to you every weekday.

Go to the Fin24 front page.
We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Rand - Dollar
18.06
-0.6%
Rand - Pound
19.39
+0.0%
Rand - Euro
17.42
-0.3%
Rand - Aus dollar
11.74
-0.3%
Rand - Yen
0.13
-0.4%
Gold
1,639.00
-0.3%
Silver
18.65
-1.2%
Palladium
2,044.15
-1.4%
Platinum
856.41
-0.2%
Brent Crude
86.15
-5.0%
Top 40
56,484
-1.1%
All Share
62,731
-1.1%
Resource 10
55,065
-2.2%
Industrial 25
78,497
+0.1%
Financial 15
13,849
-2.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders