Government spending cuts under pressure

Recommended cuts to South African government spending are being diluted to protect a popular social program, according to insiders.

National Treasury plans to slash spending that threatened a monthly grant millions of South Africans depend upon were rejected by ministers during a Wednesday cabinet meeting, said the insiders, who spoke on the condition of anonymity.

Africa’s most industrialized economy is strapped for cash after years of power shortages, transport bottlenecks and dysfunctional government, with unemployment running at 32.6%. Half of the population gets some sort of social support.

President Cyril Ramaphosa will meet with ministers to ensure “fiscal management doesn’t derail agreed-to priorities,’ Minister in the Presidency Khumbudzo Ntshavheni told journalists on Thursday following the cabinet sitting.

“Cabinet has iterated that measures to address the budget shortfall must not impact negatively on service delivery,” she said.

The governing African National Congress faces a tough election next year, and members of the cabinet are worried that the hardship caused by withdrawing the R350 monthly payments could cost the party support, stoke social unrest and risk a repeat of the lethal violence unleashed in 2021.

Money to maintain the grant will likely be raised by walking away from a public sector wage deal struck in March, the insiders said.

Strike Threat

The pay agreement gave workers an average 7% increase for the next financial year at an estimated cost of R37.4 billion.

The grant, launched during the pandemic as a temporary support but still received by around 10 million South Africans, costs R40.5 billion over the same period.

Labour unions have already threatened to go on strike if the pay deal is frozen.

The Treasury will now issue new guidelines which will reflect the position and priorities of the cabinet, especially when it comes to social spending, the insiders said.

The guidelines which will be issued to departments in the coming days, will come ahead of Finance Minister Enoch Godongwana’s medium-term budget outlook on Nov. 1.

Ramaphosa signalled earlier this month that he was unlikely to back cuts in social spending, saying that it was “not necessarily” the solution to the nation’s economic woes.

Edgar Sishi, the head of the Treasury’s budget office, told Bloomberg this month that tension with other government agencies, while not new, had grown sharper because the numbers were getting worse.

“One thing you know about politicians is that politicians have never seen a dime they couldn’t spend,” he said.