Finance Minister Enoch Godongwana. Picture: Dwayne Senior
South Africa’s Finance Minister Outlines Plans to Reduce Spending and Debt
South Africa’s Finance Minister, Enoch Godongwana, recently announced plans to reduce government spending. These changes will lower spending from 28.6% of the country’s total economy (or GDP) for the 2023-24 financial year to 27.6% in 2024-25. This plan is part of the government’s efforts to get debt under control and keep the economy stable.
This announcement was part of a larger budget update presented to Parliament in the Medium-Term Budget Policy Statement (MTBPS). The goal is to carefully cut spending while managing debt levels, focusing on areas that will promote long-term stability and growth for South Africa.
Managing Rising Debt Costs
A significant portion of the government’s budget will still go toward paying off debt. These debt payments are projected to rise by an average of 6.9% each year over the next three years, which is concerning because the more the country spends on debt, the less there is for essential services and infrastructure projects. Currently, 5.2% of the national budget is set aside for debt, and while this is high, the government hopes to bring it down in the long term.
Plans to Reduce the Budget Deficit
The treasury, which is responsible for managing South Africa’s finances, has a clear plan to reduce the budget deficit. This deficit is the gap between what the government earns in taxes and other income and what it spends. The goal is to reduce the deficit from 4.7% of GDP in 2024-25 to 3.4% by 2027-28.
To achieve this, the government aims to spend less and avoid taking on too much new debt. This will be done by achieving a “primary surplus,” which means the government will try to bring in more money than it spends on its regular expenses, not including interest on debt. Keeping this surplus will help protect South Africa’s financial health and ensure the economy remains stable in the long term.
Investing in Infrastructure and Capital Projects
Minister Godongwana also emphasized the importance of investing in infrastructure. Infrastructure projects like roads, schools, and hospitals are essential for creating jobs, improving living standards, and boosting the economy.
To fund these projects, the treasury plans to reduce borrowing costs. Lowering borrowing costs makes it cheaper for the government to take on loans, which means more money can go toward actual projects instead of paying interest. By increasing investments in these areas, the government hopes to improve public services and create new job opportunities for South Africans.
Controlling Public Sector Wage Costs
One of the government’s biggest expenses is the wage bill, or the salaries and benefits paid to public sector employees. In recent years, this bill has been growing, putting a strain on the national budget.
To control these costs, the treasury plans to limit increases in public sector salaries. Specific steps were not detailed, but the idea is to keep employee costs in check while balancing fair wages. This approach is crucial for the government to maintain financial stability while keeping services running effectively.
A Focus on Long-Term Debt Management
The government also plans to introduce new laws to ensure that debt management remains a top priority. By embedding debt management in law, the government hopes to make sure future leaders will also prioritize debt control and avoid overspending.
A “debt sustainability framework” is also being discussed, which would require the government to regularly assess its debt levels and make adjustments to keep them under control. This plan ensures that borrowing and spending decisions will always consider long-term economic health.
Social Assistance and the Future of the Relief Grant
During the COVID-19 pandemic, the government introduced a relief grant to help vulnerable citizens. This temporary grant has been extended several times, but its future is still uncertain. The treasury did not provide a clear answer on whether this grant will continue permanently.
South Africa currently spends around 4.6% of GDP on social security, which is much higher than other developing countries that average around 1.6%. Over the next three years, about 30.6% of the population is expected to receive some type of social grant, excluding the COVID-19 relief grant.
The government faces a tough choice: whether to extend the relief grant permanently or find other ways to support vulnerable citizens. The treasury said that the cabinet would revisit this issue in February 2025. In the meantime, the government is also exploring other reforms to improve social assistance in a more sustainable way.
Reforming Public Employment Programs
The treasury is looking into ways to make government job programs more efficient. These programs are aimed at providing work for unemployed South Africans. Consolidating these programs could make them more effective and reduce overlap, making it easier for people to find jobs and receive the support they need to stay employed.
The goal is to create a more organized and supportive environment for job seekers. By simplifying and enhancing public employment programs, the government hopes to provide better job opportunities and reduce unemployment rates.
Balancing the Budget: The Road Ahead
South Africa’s financial plan focuses on reducing debt and spending while investing in areas that can create long-term growth, such as infrastructure and job programs. While there are challenges, particularly around debt costs and social assistance spending, the government believes these efforts will put South Africa on a path to stability and growth.
The government’s approach emphasizes careful spending and debt control, with the aim of building a stable economic foundation. With effective implementation, these policies have the potential to improve financial stability, helping South Africa to tackle future economic challenges and create better opportunities for its people. By keeping citizens informed about these plans, the government aims to foster a shared sense of responsibility for the nation’s financial health.
As the treasury continues to navigate these complex issues, citizens will be watching closely to see how these policies impact their daily lives.