Finance Minister Enoch Godongwana and National Treasury firmly committed to fiscal consolidation and reducing South Africa’s budget deficit back to single digits, with the tabling of the 2021 Medium-Term Budget Policy Statement (MTBPS) on Thursday.
This follows the Covid-19 financial fallout last year, and comes despite a revenue windfall this year, largely on the back of more taxes from booming commodity prices.
“Fiscal consolidation is critical to reduce the public debt burden, restore investor confidence and avoid overexposure to global and domestic risks,” declares the MTBPS, Godongwana’s first budget-related tabling in Parliament since being appointed finance minister in August.
“The MTBPS proposes to maintain restraint in public expenditure. Government will not commit to new long-term spending in response to temporary revenue windfalls,” it states.
“No additional funding is provided to state-owned companies over the medium-term,” the statement stresses.
“Government remains committed to reducing the budget deficit and stabilising the [country’s] debt-to-GDP ratio,” it reiterates.
“Government will use part of the higher tax revenues associated with the recent commodity price surge to narrow the deficit, and to provide short-term [support] to the most vulnerable, and cover the higher costs of the public-service wage agreement,” it adds.
According to the MTBPS, SA’s consolidated budget deficit is expected to narrow from 7.8% of GDP in 2021/22 to 4.9% of GDP in 2024/25.
Following the Covid-19 financial fallout, Godongwana’s predecessor Tito Mboweni forecast in an emergency budget in June last year that the country’s budget deficit would surge to a record high of 15.7% of GDP.
With eased lockdowns and the ‘opening up’ of the economy in the second half of last year, Mboweni in his February 2021 main budget speech, revealed that the 2020 budget deficit was expected to come in lower at 14% of GDP.
In the wake of the revision of SA’s 2020 GDP data, which now shows a decline of 6.4%, Godongwana confirmed on Thursday that the 2020 budget deficit came in much better, at 10% of GDP.
However, government has committed to cutting the budget deficit further, to half of this figure (10% in 2020) by the end of the MTEF (Medium Term Expenditure Framework) period.
“Over the next three years, spending will remain restrained. To avoid a widening of the budget deficit, changes to spending will be funded through improved revenue performance or through reprioritisation and reviewing existing programmes,” the 2021 MTBPS notes.
“Barring major new shocks or unbudgeted spending commitments, staying the course will lead to a primary fiscal surplus in 2024/25, bringing an end to fiscal consolidation at the end of the MTEF period,” it adds.
Treasury said that this consolidation will be supported by structural reforms to unlock private-sector investment and job creation.
It also highlighted progress being made in terms of the Operation Vulindlela structural reform plan:
- The procurement of additional electricity generation capacity through the fifth bid window of the Renewable Energy Independent Power Producer Procurement Programme is expected to add 6800MW of renewable energy to the grid over the medium term.
- Raising the licensing threshold from 10 to 100 MW has made it possible for private power generators to sell directly to customers. This will reduce pressure on the national grid.
- Transnet National Ports Authority has been corporatised to improve incentives for efficiency and competitiveness.
- Transnet Freight Rail to allow third-party access to the freight rail network by the end of 2022.
- Allowing private rail operators to use the freight rail network. This will bolster system volume and capacity.
- The now completed eVisa system will be rolled out to 15 countries by March 2022, providing much-needed support for the sector.
- The National Water Resources Infrastructure Agency is being established to improve the management of bulk water resources.
- The application process for issuing single-use water licences is being fast-tracked to meet the 90-day target by March 2022.
- Work underway to standardise and improve processes for applications to access property in rolling out towers and fibre to expand digital communications infrastructure –to be finalised by October 2022.
- A review of public-private partnership regulations completed in May 2021 recommends simplifying the regulations, eliminating delays in approval and implementation, standardising project preparation, and building capacity at all levels of government – to be implemented from early 2022.