The National Treasury has few options to stabilize public finances after the ANC rejected most proposals aimed at cutting government spending and increasing revenue.
In most cases, the ANC has announced that the Treasury will increase taxes (mainly VAT by 2 percentage points) in February (a few months before national elections) and that the R350 monthly subsidy scheme will end in March. He opposes the permanent repeal of the law and the reduction of national taxes. Local budget.
Nor is the Treasury Department’s proposal to reduce state compensation costs by requiring public employees to accept voluntary retirement benefits or early retirement.
The options being considered by the Treasury come weeks before Treasury officials and Cyril discuss the medium-term budget policy statement (MTBPS), scheduled for November 1, and how to reform strained public finances. It was leaked to the media after a meeting with President Ramaphosa. . Since this meeting and others subsequently held between Finance Minister Enoch Godongwana, trade unions and the Labor Federation, the ANC has been at loggerheads.
Mamoloko Kubai, chairman of the party’s economic transformation committee, said the Godongwana government and the Ministry of Finance had acted “unlawfully” in requesting budget cuts for key service delivery programs in state government departments, particularly in health, education and criminal justice. He said he went.
Kubai said only Lampahosa has the authority to issue such instructions.
The Treasury is cornered in its attempts to ease the economic situation in a country where government spending has exceeded revenue by nearly R200 billion so far this year, amid fears the state’s funds could quickly dry up. is evoking.
terrible choice
Most market participants say the Treasury will now be forced to borrow more just to shore up its financial position, a compelling option that brings it closer to debt bankruptcy.
Over the past three years, the Treasury has been working to reduce government debt. However, it has not been reduced and is likely to rise from R4.73 trillion in 2022/23 to R5.84 trillion by 2025/26. Since April, interest on the debt alone has increased by 19.3% to R98.2 billion. This is primarily due to higher interest rates, which are expensive and reduce the ability of the state to spend money on critical service delivery programs, economic growth, and economic growth. investment initiative.
The Ministry of Finance has begun increasing borrowings with short repayment terms (about 12 months) to compensate for the decline in tax revenue.
With all the noise surrounding the financial crisis, South Africa appears to be at risk, making it difficult to attract lenders willing to lend money with long-term repayments (in some cases 10 or 20 years). I know there are. Failure to repay a loan.
The Treasury has increased its weekly issuance of Treasury Bills (debts known as T-Bills) by around R2 billion to more than R14 billion since the beginning of August. In other words, the Treasury is inviting lenders to buy up government bonds with the promise of repaying them with interest after a short period of time.
Unlike long-term debt, T-Bills (or short-term debt) are considered to cost less because they pay less interest than long-term debt.
Lenders are taking on short-term debt rather than long-term debt, a sign of caution about the financial situation ahead of MTBPS.
Economists say the government will spend around 30% this year to cover the budget deficit – a higher-than-expected deficit recorded by the Treasury at 4% of gross domestic product (GDP) – and to finance Eskom’s debt restructuring. It is estimated that R608 billion will have to be borrowed. , and also to retire existing debt that matures next year.
international monetary fund
A more dire possibility is that the government will have to approach the International Monetary Fund (IMF) to increase its borrowings, said Dr Azar Jamin, director and chief economist at Econometrics.
“A full-fledged fiscal crisis is on the horizon. If not properly addressed, the government will be forced to approach the IMF for financing, but this will come with tougher conditions.
“In this scenario, the South African government would be forced by the IMF to implement fiscal reforms and drastic action, rather than doing so on its own,” Jamin told Daily Maverick.
In 2020, South Africa borrowed R70 billion from the IMF to fight the coronavirus, with the loan repayable over five years. The money did not come with many conditions, including that the IMF would impose drastic measures on the government to reform and restructure its finances.
Sanisha Pakkirisamy, an economist at Momentum Investments, said she sees more room for the Treasury to borrow, but for non-essential expenditures such as travel, lodging, catering and workshops for state employees. Given the cuts, he said this should be the absolute last resort.
“The government’s share of foreign currency debt is just over 11% of the total, and given the 15% risk threshold, there is potential scope to increase this slightly,” he said.
However, investors and lenders, especially foreigners, are wary of South Africa’s financial situation. Annabelle Bishop, chief economist at Investec, said foreign investors have now been small net buyers of government bonds (or bonds) year-to-date.
However, in January and July these investors increased their interest in government bonds, purchasing R4.1 billion worth of bonds. Since then, their purchases have declined. DM
This story was first published in Weekly Magazine Daily Maverick 168 The newspaper is available nationwide for R29.