SA to seek budget spending cuts as debt climbs

National Treasury asks departments to prepare proposals on how to effectively reduce expenditure.
Government is seeking to cut expenditure by 5% for 2020-21 but without significantly impacting service delivery, Treasury says. Picture: Moneyweb

South Africa is seeking to cut government budgets as it moves to contain debt after promising billions of rands to rescue its power utility and a weak economy damps tax collection.

The National Treasury has asked departments to prepare proposals on how to reduce expenditure in a way that has the least impact on service delivery. It’s seeking cuts of 5% for 2020-21, and 6% and 7% for the next two years, the Treasury said. That could be as much as R300 billion ($19.7 billion) over three years.

This could be a first step in containing South Africa’s budget deficit, which is projected by Fitch Ratings to overshoot the government’s forecast by almost 2 percentage points this year. That’s after the Treasury pledged an additional R59 billion bailout for the power utility Eskom. 

Spending cuts of that magnitude could placate credit ratings companies such as Moody’s Investors Service, the last major firm to assess South Africa’s debt at investment grade, and reduce the need for tax hikes. Moody’s communication desk said by email it could not immediately respond to queries about this.

Finance minister Tito Mboweni said in February the government will reduce its wage bill by about R25 billion over three years. This would be done by encouraging early retirement. State workers’ salaries account for about 35% of the R1.8 trillion budget for the fiscal year that ends in March. Mboweni will present the mid-term budget statement with the spending framework for the next three years in October.

Johannesburg-based Business Day newspaper reported on the spending cuts earlier on Thursday.

Jackson Mthembu, the minister in the presidency, told reporters the Treasury hasn’t briefed cabinet on proposed spending cuts, adding that Mboweni would soon present an “holistic paper” on the economy. President Cyril Ramaphosa is due to speak in Parliament later on Thursday on the economic challenges facing the economy.

Read: Ramaphosa to brief lawmakers as SA seeks to cut spending

The government’s plan to give Eskom R128 billion in assistance over three years will add to state liabilities and widen the fiscal shortfall. Fitch Ratings estimates the budget gap may climb to 6.3% of gross domestic product this year, and government debt to 68% of GDP in two years.

 © 2019 Bloomberg L.P.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

COMMENTS   6

You must be signed in to comment.

SIGN IN SIGN UP

Individuals, companies & countries go broke slowly and then fast. We are speeding up rapidly. Budget cuts will happen in important areas such as maintenance and law enforcement while costs will continue to increase areas which benefit the cadres, commissars & comrades. Seen this movie before ! Look north for clues.

Govt aims to cut spending, yet they see fit to steamroller ahead with costly NHI???

This indicates to me that Govt (still) has MORE than enough money to its disposal.

I’m thus anticipating a drop in personal & corporate tax rates, to stimulate the economy, right?

No- it indicates the ANC has a serious case of Africa disease and has lost the plot like all up north.Delusional but politically correct..

They are just using this as a diversion to con the ratings agencies. If they were serious they would have started getting rid of employees not required all over government and Soe’s. Else they are just kicking the can down the road.

I think everybody knows they are BS-ing

Easiest way to save money is to fire all cadres implicated in corruption (there are plenty of them), promote honest civil servants from within. Put a freeze on hiring.

This could lead to huge savings, judging by the opinion polls CR would gain more popularity in his own constituency. He will surely erode opposition support.

Money wasted and stolen over the past 10 years and the ones who stole the money are now free to spend it. Not a care in the world. They have no affordability issues and definitely don’t have to cut their budgets! The benefactors of State Capture are smiling, while honest citizens have to listen to misguided people like Tito and Elias Masilela…both who would like us to believe that WE should be doing more to help government…..that WE owe government something….that government is somehow the victim…and this is all our fault. Perhaps government should lament this with Multichoice, who will soon look for protection from government against competition as it continues its slide into irrelevant obscurity….

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: