President Cyril Ramaphosa dismissed warnings from economists that South Africa is running out of money and is facing a fiscal cliff.
Last month, renowned economist Dawie Roodt said South Africa was running out of money and that the solutions, including spending cuts, are politically unpalatable.
He highlighted that the state’s expenses will be much larger than expected and economic growth much smaller.
Without spending cuts or rapid economic growth, South Africa’s debt will continue to grow, and it will continue to spend more on servicing interest on this debt.
It can lead to a debt spiral, ultimately resulting in high inflation levels, further stifling economic growth.
The outcome of this situation can be devastating for a country, which is why many experts are urging the government to cut spending as a matter of urgency.
South African Institute of Taxation CEO Keith Engel also warned that the country is facing a severe budget shortfall.
He added that, with a stagnant, over-taxed tax base and massive debt, the government has run out of ways to raise more money.
“What’s happened is we’ve run out of options. South Africa can’t increase its taxes anymore because to tax people more is actually to reduce the economy,” he said.
Ramaphosa downplayed these warnings, saying Finance Minister Enoch Godongwana provided the ANC NEC with the country’s fiscal situation.
“The ANC NEC is reassured that South Africa is not running out of money,” Ramaphosa said following the party’s meeting.
He added that South Africa’s fiscal pressures stem fundamentally from an economic challenge of slow and jobless growth.
“Instilling discipline is as important as taking decisive steps to grow the economy. Fiscal discipline is not the same as imposing austerity measures that will undermine our developmental agenda,” he said.
“Accordingly, the NEC encourages the government to continue with the implementation of structural reforms, particularly in the areas of energy and logistics.”
The Finance Minister shared the same message regarding the state’s finances in a parliamentary question and answer session.
Godongwana said the government is working to manage public finances prudently and sustainably.
“This includes appropriately responding to the materialisation of risks, including unforeseen economic and financial conditions. To be clear, the government has not run out of money,” he said.
He highlighted that the government publishes the “Statement of the National Government’s Revenue, Expenditure, and Borrowing” monthly.
“This statement provides detailed information about government revenue collections, expenditure and borrowing,” he said.
Revenue collections for the first four months of 2023/24 have performed below expectations, primarily due to under-collections in corporate income tax and higher VAT refunds.
“Therefore, the main budget deficit for the first four months of 2023/24 is higher than expected,” he said.
He admitted that compared to the 2023 Budget, South Africa’s economic and revenue outlook has deteriorated.
“Tighter financial conditions have constrained the government’s borrowing programme and led to higher borrowing costs,” he said.
“The government remains committed to prudent fiscal management and addressing these challenges to ensure the financial stability of the nation.”