By Mike Cohen.
South Africa’s public finances are in a poor state, with the government failing to meet its tax-collection targets and tighter financial conditions making it difficult to borrow more and at affordable rates, Finance Minister Enoch Godongwana warned.
Short-term risks to the local and global economy identified at the time of the budget in February have materialized, Godongwana said in an emailed copy of a speech to a public finance management conference on Wednesday. Ongoing power cuts, logistical constraints and the consequences of a campaign to loot state funds during former President Jacob Zuma’s nine-year presidency had made the difficult fiscal situation more challenging, he said.
There’s “tremendous strain on the financial resources we have available to address our most urgent service delivery priorities,” said Godongwana, who is due to deliver a budget update on November 1. “We have faced similar challenges in the past and managed to make the necessary policy decisions and trade-offs to navigate the storm.”
The National Treasury has already signaled to government departments that they will need to pare back spending if it is to meet its debt-stabilisation targets. Expenditure cuts will come at a difficult time for the ruling ANC, which is gearing up for elections next year and is at risk of losing its national majority for the first time since it took power in 1994.
National Treasury highlighted that the overspending occurred in 13 different government departments and entities over the years, with five entities still being processed.
The biggest overspender was the Department of Social Development, overspending by R15,1 billion due to President Cyril Ramaphosa’s declaration of a national state of disaster during to the Covid-19 pandemic.
The Department of Transport overspent by R1,34 billion between 2013 and 2016 on the implementation of the eNatis system and the department of public service and administration overspent R8.8 million.
Other overspending included a R120 million for Statistics SA due to previous budget cuts that led to overspending and R3,7 million by the Government Communication and Information System for the state funeral of former president Nelson Mandela in 2013.
Investors have turned less positive on the nation’s debt on worries over the potential for a bigger budget deficit, according to a survey by Bank of America Corp. The Treasury reported a record monthly shortfall of R143.8 billion for July.
Edgar Sishi, the head of the Treasury’s budget office, said there was little scope to raise taxes because South African rates were already uncompetitive and other options needed to be considered to stabilise the state’s finances.
“Investment and growth are too low for meaningful job creation and reducing inequality,” he told the conference in Kempton Park, east of Johannesburg. “Public financial management should incentivise and support the ability of the broader economy to invest and grow, not the other way around.”
It was imperative that the government hold individuals and entities accountable for financial misconduct, Godongwana said.
“Without swift and fitting consequences, we risk eroding public trust in our capacity to manage public funds effectively, with less and less funding available to deliver much-needed services to our people,” he said.