Godongwana blames ‘wrong’ policies for debt
Wage bill on the increase
In every R1 the government collected, 31 cents went towards paying the public wage bill.
LONDIWE BUTHELEZI
South Africa’s Finance Minister Enoch Godongwana says National Treasury is committed to the process of collective bargaining. But it finds itself between a rock and a hard place, having to stick to the strategy that will help it arrest runaway debt, even in the face of rising vacancies in areas like healthcare and education.
Speaking at the public service summit on Monday, Godongwana said while 2021 gross domestic product (GDP) numbers came out better than the government initially expected, and labour might view this as a justification for better wage increases, a lot of the factors that drove the country’s economic recovery were likely to reverse.
For instance, as the South African Reserve Bank hikes interest rates, this will begin to affect consumption expenditure that’s driven by credit. There is also the problem of the Russia-Ukraine war, which is already driving global inflation to new heights.
So, the government has to carefully balance its expenditure on many competing priorities, including the rising cost of servicing its debt, while the level of economic growth is not guaranteed.
It also has to honour the promised relief to consumers through the freezing of certain taxes Godongwana announced in his budget speech and the review of the fuel price formula.
He said currently, in every R1 the government collected, 31 cents went towards paying the public wage bill. The other areas of expenditure that eat up most of South Africa’s budget are something Treasury would likely be hesitant to touch. For instance, 15 cents in every rand the government spends go towards paying social grants. And only nine cents are left for capital expenditure.
“Despite all this, we must be on course with our fiscal strategy. South Africa’s debt-to-GDP ratio must be kept under control.”
Godongwana said this year, Treasury expected government debt to reach R4.3 trillion, rising from R627 billion in the 2008/09 fiscal year.
The government expects its debt-servicing costs to be close to R500 billion per annum by the next fiscal year. “It is bigger than home affairs, defence, police and other security clusters combined,” he added.
Eskom
Godongwana said while he was cautious in his management of the public wage bill, he was “a fan” of bulking up frontline departments.
Currently, there were 12.7% unfilled vacancies in public services, mostly in healthcare and education, said the director-general of the Department of Public Service and Administration, Yoliswa Makhasi.
Godongwana said this was partly a result of the government’s decisions to redirect money from frontline services to bail out Eskom. He added in the 14 years of power outages in South Africa, it focused on “fixing Eskom” instead of investing to get more electricity into the grid.
While Eskom got R200 billion in the past three years, the police lost R63.9 billion in the last two years, said Godongwana.
As the government borrowed more to save Eskom, it has created a debt servicing burden that it can no longer handle. The social grant bill is also growing unabated. Over the next three years, R1.3 trillion of the government’s budget will go towards learning and culture. Social grants will take R1 trillion, and another R1 trillion will go towards debt-servicing costs.
On the other hand, healthcare will get R300 billion less than debt-service costs. Peace and stability services such as policing will receive almost half of the budgeted debt-servicing costs. - Fin24/Bloomberg
South Africa’s Finance Minister Enoch Godongwana says National Treasury is committed to the process of collective bargaining. But it finds itself between a rock and a hard place, having to stick to the strategy that will help it arrest runaway debt, even in the face of rising vacancies in areas like healthcare and education.
Speaking at the public service summit on Monday, Godongwana said while 2021 gross domestic product (GDP) numbers came out better than the government initially expected, and labour might view this as a justification for better wage increases, a lot of the factors that drove the country’s economic recovery were likely to reverse.
For instance, as the South African Reserve Bank hikes interest rates, this will begin to affect consumption expenditure that’s driven by credit. There is also the problem of the Russia-Ukraine war, which is already driving global inflation to new heights.
So, the government has to carefully balance its expenditure on many competing priorities, including the rising cost of servicing its debt, while the level of economic growth is not guaranteed.
It also has to honour the promised relief to consumers through the freezing of certain taxes Godongwana announced in his budget speech and the review of the fuel price formula.
He said currently, in every R1 the government collected, 31 cents went towards paying the public wage bill. The other areas of expenditure that eat up most of South Africa’s budget are something Treasury would likely be hesitant to touch. For instance, 15 cents in every rand the government spends go towards paying social grants. And only nine cents are left for capital expenditure.
“Despite all this, we must be on course with our fiscal strategy. South Africa’s debt-to-GDP ratio must be kept under control.”
Godongwana said this year, Treasury expected government debt to reach R4.3 trillion, rising from R627 billion in the 2008/09 fiscal year.
The government expects its debt-servicing costs to be close to R500 billion per annum by the next fiscal year. “It is bigger than home affairs, defence, police and other security clusters combined,” he added.
Eskom
Godongwana said while he was cautious in his management of the public wage bill, he was “a fan” of bulking up frontline departments.
Currently, there were 12.7% unfilled vacancies in public services, mostly in healthcare and education, said the director-general of the Department of Public Service and Administration, Yoliswa Makhasi.
Godongwana said this was partly a result of the government’s decisions to redirect money from frontline services to bail out Eskom. He added in the 14 years of power outages in South Africa, it focused on “fixing Eskom” instead of investing to get more electricity into the grid.
While Eskom got R200 billion in the past three years, the police lost R63.9 billion in the last two years, said Godongwana.
As the government borrowed more to save Eskom, it has created a debt servicing burden that it can no longer handle. The social grant bill is also growing unabated. Over the next three years, R1.3 trillion of the government’s budget will go towards learning and culture. Social grants will take R1 trillion, and another R1 trillion will go towards debt-servicing costs.
On the other hand, healthcare will get R300 billion less than debt-service costs. Peace and stability services such as policing will receive almost half of the budgeted debt-servicing costs. - Fin24/Bloomberg
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