Treasury warns government of fiscal crisis

South Africa’s National Treasury warned other government departments that it is confronting significant budgetary challenges and that spending needs to be reined in if it is to meet its debt-stabilisation targets.

An increase in government borrowing and spending hasn’t translated into economic growth, more tax revenue or a narrower budget gap, said Edgar Sishi, the head of the Treasury’s budget office.

He warned that targets outlined in the February budget are unlikely to be met, with a revenue shortfall translating into a wider-than-expected deficit.

The evidence shows that we aren’t “going to spend our way out of our current problems”, Sishi said in an interview last week.

“We are down by more than R21 billion ($1.11 billion)” against the revenue projection, “so fiscal measures have to be taken if we are going to maintain our policy targets of reining in the debt and reining in interest costs”.

The Treasury announced a three-year fiscal consolidation plan in 2020, but it never yielded the required outcome and has been extended until at least 2025.

Despite revenue undershooting, the government has “no choice” but to try and stay the course, Sishi said.  

Curbing spending will be a tough task for South Africa’s governing African National Congress, given that it is due to contest elections next year and opinion polls show it is in danger of losing its national majority for the first time since it took power in 1994.

Revised spending allocations and projections will be given when Finance Minister Enoch Godongwana delivers his medium-term budget policy statement on 25 October.

In a letter sent to government departments last week, the Treasury said the expenditure ceiling set in the 2023 budget would remain, and no additional resources would be made available while existing baseline budgets would be adjusted downward to accommodate its funding shortfall. 

“Due to the weak performance of the economy and the shortfalls in revenue collection, the government is required to implement measures to contain costs and achieve savings in large spending areas,” the Treasury said.

“This will ensure that we continue to strike a balance between the government’s commitment to improve the health of the public finances whilst protecting important social and other spending.” 

Political leaders have found it difficult to withdraw what was supposed to be temporary support for the poor, such as a grant that was introduced to offset the fallout of the coronavirus pandemic, according to Sishi. 

The “trade-offs were quite obvious” when politicians announce plans that aren’t properly budgeted for, he said.

“All you are doing is escalating the fiscal risks that are going to create a crisis anyway. So I say to people, you talk to me about an election, what is the election message? Are we going to have a fiscal crisis?”


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