There is no departure from his predecessor Tito Mboweni’s stance on fiscal consolidation. Cartoon: Bethuel Mangena/African News Agency(ANA).
FISCAL POLICY
THERE was no aloe ferox plant, no quoting of Bible verses or dead poets, nor casual mentioning of sorghum beer when Finance Minister Enoch Godongwana delivered his maiden Budget speech in Parliament on Thursday.
But for those who thought this signalled a departure from structural reforms and fiscal consolidation championed by Godongwana’s predecessor, Tito Mboweni, they were in for a disappointment as the umbilical cord remained intact.
“In so far as fiscal framework perspective and structural reforms, we are on the same page,” Godongwana said of Mboweni during a pre-Budget media briefing.
“I always tell him that ‘the only difference between the two of us is your shoes. I wear better shoes than you. But maybe I’m not good at cooking as well.”
Godongwana yesterday tabled the Medium-Term Budget Policy Statement under pressure from socio-economic crises of poverty and unemployment that have been magnified by the impact of the Covid-19 pandemic.
Although his Budget was shored up by buoyant tax revenue collections exceeding estimates by R120.3 billion on the strength of the global commodity price surge, gross revenue was forecast to remain well below pre-pandemic levels.
Revenue for 2021/22 was now estimated to reach R1.51 trillion, compared to R1.4trln at the time of the 2021 Budget in February.
The consolidated Budget deficit is expected to be 7.8 percent of gross domestic product (GDP) in 2021/22, gradually lowering to 4.9 percent in 2024/25.
As a result, the finance minister was frank about the government’s finances, pointing toward fiscal pressure posed by rising debt levels over the medium term as unemployment lags economic recovery.
Godongwana said the impact of the global pandemic in 2020 had resulted in a sharp increase in the government’s gross borrowing requirement and elevated levels of debt in relation to GDP.
The government’s gross borrowing requirement is also forecast to remain elevated in spite of being revised lower for 2021/22, from R547.9bn to R475.1bn. As a result, gross loan debt was expected to rise from R4.31trln, or 69.9 percent of GDP, in 2021/22 to R5.54trln, or 77.8 percent of GDP, in 2024/25.
This will be driven by the Budget balance and fluctuations in the interest, inflation and exchange rates.
“Instead of getting higher growth from fiscal expansion, our debt continued to rise,” Godongwana said.
“The R4trln in debt that we now owe is incurring debt service costs that will become the largest portion of spending, compared to individual functions, from next year.”
Debt-service costs will continue rising over the medium term from R269.2bn in 2021/22 to R365.8bn, or 5.1 percent of GDP, by 2024/25, given the persistent main budget deficit, weaker currency and higher interest rates. “These debt service costs are non-discretionary. In other words, we cannot avoid paying them. Their effect, therefore, is to crowd out other spending priorities,” he said.
Godongwana, however, said efforts to narrow the Budget deficit and stabilise debt remained broadly on track, with a forecast to bring fiscal consolidation to a close more quickly than anticipated, in 2024/25.
He also warned of “significant risks” to the medium-term fiscal framework outlook which could be brought about by a slowdown in global economic growth, the evolution of the Covid-19 pandemic and slow progress in vaccine roll-out, as well as the slow implementation of structural reforms.
Godongwana said fiscal consolidation measures could also be undermined by further credit rating downgrades due to spending demands and the materialisation of contingent liabilities, and pressure on the government wage bill ceiling.
He said the faster implementation of structural reforms to unlock greater private sector investment, economic growth and job creation was critically important.
“Critical to the fiscal path we have chosen is the need to be clear and unambiguous on the trade-offs we are willing to make as a nation. We cannot do everything we want at the same time,” he said. “A fast-growing economy will allow for greater revenue collection, making it possible for more comprehensive responses to the challenges we face,” he added.
As a result, Godongwana said committing to higher levels of spending in the absence of faster economic growth would further undermine macro-economic credibility, with increasingly detrimental effects on the economy.
siphelele.dludla@inl.co.za
BUSINESS REPORT ONLINE
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