Finance Minister Enoch Godongwana presented his medium term budget policy statement where he pointed to low growth projections for the year ahead. airus Mmutle/GCIS
Prof. Bheki Mngomezulu
On Wednesday, Finance Minister Enoch Godongwana delivered his Medium Term Budget Policy Statement (MTBPS). Unlike in the past when he was upbeat and jovial, the minister seemed sombre and contained.
The country’s economy is not doing well. By his own admission, the government forecast a 0.8% growth in real gross domestic product (GDP) in the current year. This is 0.1% lower than the projection made during the Budget speech he delivered at the beginning of the year. Godongwana went further to admit that “these growth rates are not sufficient to achieve our desired levels of development”.
The announcement that government spending will be revised down by R21 billion for the current year, reduced by R64bn in 2024/2025 and by R69bn in 2025/2026 is an honest admission of this fact.
Godongwana stated three objectives of his MTBPS, which demonstrated a balancing act. The first one was to stabilise public finances while maintaining support for the most vulnerable people and protecting front-line services. Secondly, he aimed to fast-track growth-enhancing reforms – including the new financing mechanism for large infrastructure projects. Thirdly, the MTBPS aimed to reconfigure the structure and size of the state, while also strengthening its capacity to deliver public services.
Achieving these goals was never going to be easy from a practical point of view. Unless the economy grows at the expected rate, it would be difficult for the minister to deliver on his promise.
Another factor which posed a challenge to the minister is the fact that 2024 is the election year. As such, he had to tread carefully. This included making decisions that are neither sustainable nor rational.
One of these decisions is to continue borrowing more money from international financial institutions such as the International Monetary Fund (IMF) and the World Bank while the country is struggling to repay its existing debt.
The implication is that South Africa will be further indebted. The fact that the country has recently been greylisted means that our interest rate is high. As the country services its debt, service delivery will suffer. Consequently, there could be social unrest which might lead to a further deterioration of the country’s prospects for economic growth. Another noticeable announcement was that municipalities that owe Eskom up to March 31 2023, will have their debt written off over a three-year period depending on their successful application.
While this is good news at face value, it might have negative implications. Firstly, billions of rand will be lost indefinitely. Secondly, while the decision has been taken with good intention, it might set a precedent. In future, municipalities might incur more debts knowing that these will be written off at a later stage.
Inevitably, Eskom will continue to struggle financially. Subsequently, this will give the company more reason to prolong load shedding, which has become a public menace and a huge inconvenience. The minister admitted that “we have experienced more power cuts in the year to September 2023 than in the whole of 2022”. This shows the severity of the problem caused by instability in Eskom.
The continuation of the social relief of distress grant is understandable, especially given the high unemployment rate in the country. However, there are two issues here. The first one is that this money is not as impactful as the government would like it to be. It was R350 in 2020 when it started and it continues to be the same amount now, and will continue in the same figure until March 2025. This is despite the inflation rate which has witnessed huge increases in food prices and other commodities.
The second issue is affordability on the side of the government. Given the country’s weak economy, the government has two options: to increase taxes or to borrow more money from abroad.
The first option is nullified by the financial strain faced by South Africans and the upcoming election. Raising taxes now might cost the ANC votes. Borrowing more money will increase the government’s debt. Therefore, there is no easy way out.
Lastly, the issue of Transnet poses a serious challenge. It is true that “South Africa’s logistics system faces significant challenges”. Ignoring Transnet will not make these challenges disappear. On the other hand, continuously bailing out Transnet in the same manner that SAA was constantly bailed out might not be sustainable.
Addressing this matter calls for astute leadership that is both visionary and pragmatic. In a nutshell, the 2023 MTBPS will have serious implications for this country. Opposition political parties, trade unions, the private sector, and the public will react differently to it. Since 2024 is the election year, the contents of this MTBPS will be used to score political points.
*Prof. Mngomezulu is Director of the Centre for the Advancement of Non-Racialism and Democracy at the Nelson Mandela University
**The views expressed do not necessarily reflect the views of Independent Media or IOL