Finance Minister has big plans to cut runaway spending

South African Finance Minister Enoch Godongwana said he will announce measures to curb “runaway expenditure and debt” while bumping up borrowing in the medium-term budget he will present next week.

“The problem with debt is the capacity of the economy to service it,” Godongwana said Friday in a speech at the Kgalema Motlanthe Foundation Inclusive Growth Forum.

“In this environment, in this trajectory, our ability to service that debt is becoming constrained, and therefore, we have got to do something about it.”

With public debt sitting at about R4.5 trillion, Godongwana painted a “grim” picture of South Africa’s public finances ahead of his budget policy statement on Nov. 1 and reiterated that moderate spending cuts are planned.

National Treasury was forced to climb down from proposed spending cuts ahead of the budget which weren’t supported by President Cyril Ramaphosa and the rest of cabinet.

“We have been forced to bump up borrowing because if we did not, the cuts would have been more massive,” he said without specifying the new borrowing.

Godongwana is expected to announce a large revenue shortfall and a wider-than-expected budget deficit, compounded by low growth and weaker earnings from commodity exports.

The missed targets have sparked concern that 2025 debt stabilization targets could be at risk.

“We are going to have a serious challenge,” he said. “Foreigners are not buying our bonds anymore.”

State-owned companies continue to weigh on public finances. The latest request came from rail and logistics firm Transnet SOC Ltd., which is asking for around R100 billion over the next two years.

Godongwana says that throwing money at ailing state-owned companies hasn’t been fruitful. Instead of trying to fix Transnet, the government should focus on getting “product to the port,” he said.