Minister Mboweni’s special adjustment budget highlighted the need for action to avoid an impending sovereign debt crisis, i.e. when a country can no longer pay back the interest or principal on its borrowings
. With higher government spending and lower tax revenue, the tax target for this year is likely to be missed by over R300 billion. Early projections show that gross national debt will likely be close to R4 trillion, or 81.8 percent of GDP by the end of this fiscal year, compare to the February 2020 estimate of R3.56 trillion or 65.6 per cent of GDP.
The October medium term budget policy statement (MTBPS) and the February 2021 budget are likely to give more details on tax measures to make up for the lost tax revenue. However, effective implementation of cost containment measures, for example the public sector wage bill and limiting bailouts for state-owned enterprises (SOEs), will be crucial.
In the depressed economy, tax measures alone will not be able to solve the crisis of rising government debt and debt service costs. Economic reforms are now more essential than ever, reforms should create an operating environment that is conducive to business and foreign direct investment. The focus on infrastructure, for example, the R100 billion committed towards the Infrastructure Fund over ten years, can help to improve competitiveness and support growth. However, the effective use of such funds towards timely and cost effectively completing projects, along with maintenance of existing infrastructure such as key roads servicing agriculture, will be needed to make a real difference.
Plans for National Treasury to monitor the spending of municipalities through monthly and quarterly reports are a start to manage the poor performance of municipalities. However, detailed interventions and support will be necessary to achieve meaningful change.
We welcome the allocation of R3 billion to recapitalise the Land Bank, along with National Treasury’s support to develop a long‐term restructuring plan. The Land Bank is a crucial part of the agricultural value chain.
Finally, a focus on effective and efficient government expenditure, that can help to support an economic recovery, along with fiscal discipline is crucial to prevent a sovereign debt crisis and further economic decline. This must be accompanied with the speedy implementations of policy reforms as outlined in National Treasury’s document: Towards an Economic Strategy for South Africa. We hope to see more action towards this end as we move towards the MTBPS and the February 2021 budget.
