By Lehlohonolo Lehana.
Minister of Finance Enoch Godongwana, on Wednesday, said that the government was transforming its approach to private-sector participation in public infrastructure projects.
Godongwana was delivering his first Medium-Term Budget Policy Statement (MTBPS) since the formation of the Government of National Unity.
Medium-Term Budget Policy Statement (MTBPS) plays an important role by providing a mid-year review of South Africa’s fiscal performance.
The speech informs South Africans if the targets that government set in the February Budget have been met and what needs to be implemented in the coming year.
Public and private fixed investment levels currently stand at about half of the targeted 30% of gross domestic product (GDP) set in the National Development Plan, and the MTBPS describes the quality of public-sector infrastructure spending as suboptimal and the quantity as inadequate.
“As a result, existing infrastructure is deteriorating, backlogs are growing and the cost of providing infrastructure is high.
“This represents both a challenge and an opportunity,” the MTBPS reads.
While government would restructure the way public infrastructure projects were prepared and financed, Godongwana emphasised the measures being taken to mobilise private resources to augment constrained public capability amid weak growth.
Notwithstanding the 3% growth target set as an aspiration for 2025 by government and business, the National Treasury is forecasting growth of only 1.7% next year, on the back of a forecast of 1.1% for 2024, which represented a downward revision from 1.3% forecast in the February Budget.
Such low growth continues to place strain on the revenue outlook (which was also lowered by R22.3-billion in the MTBPS) and the fiscal balance, which currently reflects a debt burden of R5.26-trillion or 74.1% of GDP, and has resulted in debt-service costs now consuming 21.6% of revenue.
Government had identified higher levels of infrastructure investment as crucial for lifting growth and employment, but was also pursuing a fiscal strategy aimed at narrowing the consolidated Budget deficit from 5% of GDP in 2024/25 to 3.2% in 2027/28, while stabilising debt at 75.5% of GDP in 2025/26.
The MTBPS, therefore, lists a series of reforms geared towards catalysing greater PSP in infrastructure, including a proposal to launch a credit enhancement instrument to de-risk projects for developers and lenders, while mitigating government’s need to add to contingent liabilities.
The instrument is being developed with the support of the World Bank and is also being canvassed with private reinsurers.
It will initially be used to support independent transmission projects (ITPs), with the lack of electricity grid infrastructure having emerged as a constraint to connecting new renewable-energy plants.
The National Treasury confirmed that a pilot ITP project was being prepared for next year using a build-operate-and-transfer model, but did not provide further specifics regarding the institutional arrangements.
However, ongoing reference was made to the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) as a “template” for the procurement of public infrastructure.
The REIPPPP projects have been procured through a dedicated structure known as the IPP Office.
It was also confirmed the credit-enhancement vehicle would be operational by the end of 2025 and that the tool would be used as part of the new blended financing risk-sharing platform to help de-risk the ITPs.
State-owned enterprise bailouts: No new bailouts were awarded to state-owned enterprises (SOEs) in the statement. There was no money allocated for the SA Post Office, which has asked the Treasury for an additional R3.8-billion to avoid liquidation. Without the funding the SA Post Office’s doors are likely to permanently close, along with its 657 branches across the country, leaving its remaining 6,208 workers out of work.
Social grants: In the statement, the Treasury has sidestepped the issue of making the R370-a-month social grant permanent or replacing it with a Basic Income Grant. The Treasury has repeated its previous position on the matter, saying that a permanent grant must be supported by higher revenue sources. Proposals on ways to reform and possibly extend the welfare systems will be presented in the 2025 Budget.
Public sector wage bill: The government is struggling to wrestle down the cost of paying South Africa’s 1.3 million public servants. Over the next three years, this cost will increase by R145-billion. Of this amount, R48.4-billion will go towards funding pay increases for public servants during the 2025/26 fiscal year. During this period, the government has floated the idea of offering public servants wage adjustments of 4.7%. To reduce the wage bill, the government will ask older public servants to accept voluntary early retirement packages between 2025 and 2026 — which could save the Treasury up to R11-billion. More details will be unveiled in the 2025 Budget.
Government spending: The Treasury has long committed to a programme of reducing spending to put public finances on a sustainable path. However, there are still no tangible decisions on reducing government spending. This underscores difficulties in getting an agreement or consensus on which government departmental budgets to cut. Instead, government expenditure will increase by R32.4-billion to reach R2.7-trillion over the next two years on things including funding early retirement packages for public servants, paying nearly R4-billion in debt left by the scrapping of e-tolls in Gauteng, and the deployment of SANDF troops in the Democratic Republic of the Congo, activities of South Africa’s G20 presidency in 2024/25, and unforeseen circumstances (supporting the rebuilding and rehabilitation of infrastructure damaged by floods across multiple municipalities and provinces).
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