South Africa

Government budget cuts could lead to social unrest

The government might have to cut back on spending for social services due to budget constraints, which could lead to social unrest and increased frustration with the status quo. 

This is according to economist and head of policy analysis at the Centre For Risk Analysis Chris Hattingh.

His comments come after the National Treasury recently announced that the state is facing a severe budget deficit and will have to introduce stringent cost-cutting measures.

The National Treasury said South Africa’s monthly budget balance fell back into a larger-than-expected and record monthly deficit of R143.8 billion in July, following a R36.6 billion surplus in June.

Aside from decreased tax revenue, government expenditure is outpacing budget expectations, increasing by 9% year-on-year from April to July.

This is significantly higher than the February budget forecast of a 1.5% increase for the entire fiscal year. 

In response to this situation, the National Treasury has proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap.

The Sunday Times recently reported that the National Treasury has sent a letter to provinces asking for significant expenditure cutbacks. 

The measures include a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.

Hattingh told eNCA that the biggest risk of the budget shortfall is that the government will no longer be able to fulfil its role of being a “developmental state”

In other words, the state will no longer be able to provide services like healthcare, education, basic infrastructure, and social grants.

“When your debt burden, as well as the interest on your debts, gets ever higher and higher, you then need to make some very pragmatic, difficult decisions in terms of your spending,” he said.

“And that, in turn, could mean a cut to services upon which so many South Africans depend.”

He warned that this could lead to increased social unrest and frustration with the current status quo.

Hattingh said the government is being pulled in two different directions, as it faces a massive budget shortfall on the one side and an upcoming election year on the other.

The government is facing a lot of pressure to secure funding for the rest of the year, which means they may have to resort to “radical moves”.

“You’ve got the tax base under a lot of pressure, but also you’ve got the context of an election and promises around things like National Health Insurance, a Basic Income Grant and other forms of spending,” he said.

“Where is the balance going to come from if there is going to be a balance?”

He said the weakening of the rand due to domestic problems like the logistics crisis, load-shedding, and crime, is making it more difficult for the government to raise revenue by selling government bonds.

“This, in turn, means the government can’t raise as much as it would have done before which puts yet more pressure on it to make very difficult pragmatic decisions.”

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