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Treasury warns of R2trn economic loss over the next 10 years

Releases guidelines for public institutions detailing steps that must be taken to narrow the deficit and stabilise debt.
Finance Minister Tito Mboweni. Government debt is expected to peak at 140% of GDP by the end of the decade if nothing is done to stabilise it. Image: Waldo Swiegers, Bloomberg

National Treasury has emphasised the need to arrest growing state debt, warning that a default or fiscal crisis could see the South African economy lose an estimated R2 trillion by the end of the decade.

On Tuesday it released technical guidelines that must be followed by government departments and public institutions as they prepare their medium-term budget estimates for the 2021 budget. The process is in line with Finance Minister Tito Mboweni’s earlier instruction that public institutions adopt a zero-based budgeting approach to ensure the effective use of shrinking state resources. 

The document, which details the country’s growing and unsustainable fiscal debt profile since 2008, states that there should be no ‘holy cows’ and that “no spending items will be automatically protected from possible downward adjustment” as departments compile their budget submissions ahead of Mboweni’s mid-term budget policy statement presentation in October. 

Pandemic

The state’s net loan debt has increased six times in the past 12 years – from under R500 billion in the 2007/2008 fiscal year, to close to R3 trillion by the end of 2019/20, said Treasury. 

The impact of the Covid-19 pandemic has caused a sharp deterioration in South Africa’s already-fragile public finances. The budget deficit for 2020 has more than doubled since the February budget to 15.7% of GDP (gross domestic product), while the economy is expected to contract by 7.2%.

Government’s borrowing requirement has increased as the country is expected to miss its tax revenue target by R304 billion due to the lockdown, which limited economic activity in an effort to slow down the spread of the virus and better prepare the health system.

Treasury said gross national debt is expected to reach 82% of GDP in the current year and, if left unchecked, would breach the 100% ceiling in 2023. 

“This will signal the emergence of debt distress episodes as a vicious cycle of high borrowing rates and low growth lead to ever deeper debt spirals, lower investment and lower economic output,” it said.

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“Targeting sustainable public finances is also critical for maintaining policy flexibility and sovereignty, as harsher measures will be required by lenders of last resort,” it added.

But the government has chosen a more active approach, involving structural reforms and fiscal consolidation in order to stabilise the debt at 87% in 2023, after which it is expected to steadily decline. 

“With savings levels quite low, high government deficits will expose the country to higher borrowing risks, push interest rates upward and extract from growth through lower private sector investments,” said Treasury.

“In the event of a debt default or fiscal crisis, the National Treasury has estimated that this would cost the country at least R2 trillion in lost economic activity by the end of the decade.”

Spending reviews

National departments and public institutions are expected to conduct a series of spending reviews where expenditure will be analysed. Institutions are supposed to provide a rationale for spending items, signal how spending is linked to mandates and policies, and indicate where cost reductions can be made and how this will affect service delivery.

“This analysis aims to provide a thorough understanding of baselines and a strong empirical base for clear recommendations to decision-makers,” said Treasury.

Read: Finance institutions commit ‘tens of billions’ to infrastructure

It said that due to the deteriorating economic and fiscal outlook no additional resources would be provided for the 2021 medium-term framework – and that if departments or institutions require additional funding for programmes, such funding should be sourced through reductions to other programmes “either within the department’s budget or from other departments’ budgets”.

Beyond fiscal consolidation, the 2021 medium-term budget framework also intends to “change the composition of spending towards spending that stimulates economic growth” – such as investments in infrastructure.

Key to this is a reduction in the public sector wage bill.

Treasury said the contested R160 billion provisional wage reductions announced in the February budget have already been applied to the baseline budgets of departments and institutions.

It said departments should “implement stringent compensation containment measures”, including providing employees with the option of early retirement without penalty and actively managing performance bonuses in line with relevant Department of Public Service and Administration circulars. 

Compensation for overtime and progression payments should also be actively managed where possible, while new applications for costs related to early retirement will be processed through normal budgetary processes.

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Guess it also means having ZAR based investments would not be to clever.

Come to think of it, its the same as having these ANC thieves as your portfolio manager.

Start laying off public sector employees urgently.

Yep, stop giving State employees a fat no-risk income for life. Start retrenching them; they are leeches of our tax money taking over half of it yet giving very little back.

NO. If the State can DOUBLE UP their expenditure, by either doubling the number of employee count….then we can proudly state R10bn will be lost over next FIVE years.

The more likely scenario the way I know the ANC looters.

The problem is that the grotesquely overpaid public sector unions will have the last say, until the country is forced into a bailout.

Problem is, there is going to be NO bailout by anyone. A tragedy of epic proportions is slowly unfolding before our very eyes. Many of our people are going to starve to death. There are too few carrying too many. It is just not sustainable.

Mass exodus of cadres with banks in Dubai. That is why they need SAA. To get away leaving millions of there own to starve.

A regime that makes apartheid look like paradise.

Very well put: ‘A tragedy of epic proportions’indeed.

No need for any bailout yet, as this country sits on a R4-R8trn (depending on which source you use) fat Retirement/Pension fund pot.

Once THAT is DEPLETED, it will be followed by manic Rand printing/hyper-inflation.

Once all hope is lost, and nothing worthwhile left in SA, then IMF will be asked. But at that point, no-one would care. We’d be all gone (to heaven, or hell, of if alive, abroad)

Hey, ANC. Time to pay back the money.

Dear Tito and moneyweb keep publishing these types of articles- everyone in civil service needs to get it in their heads that they must perform and reduce costs/numbers

Do you honestly think public service employees care?

I watch first hand how a Eskom Cleaner who was getting CTC R10,000.00 was asking for an increase and then went on a go slow.

To top it all, 20% of public procurement has been stolen over the last 24 years in real terms that means R1.5 Trillion and now they are warning of another R2trillion.

All I can say is, invest off shore get your kids out and if you are saying prepare for ISIS as they are in Northern Mozambique and coming down to SA.

Public Admin should not cost the country more than 10%, some countries are able to function at with a public wage bill 5% like the private sector.

When you exceed a threshold of 20% you are extreme trouble. South Africa is at 32% approximately R621,000,000,000.00 for 2020

I think we have all accepted that life from here on now, will never be the same as it was. Covid is just a convenient excuse….
10 years of mismanagement, theft and fraud brought this country to its knees – now we have the highest unemployment ever recorded, a grants system that is encouraging over population, an education system that is rife with ineptitude and corruption and global warming which has already passed its sell by date.
The fact that we now have IMF and WB loans that have to be serviced just adds insult to injury.
It’s not Covid that has to take the blame…..although it hasn’t helped but has highlighted how fragile our economy, health service and communities are.
When 20% of people are paying more than 80% of the tax revenues that keep this country going…you know that it’s going to end badly unless something changes.
This has to happen…and happen fast.
* prosecute and punish the real criminals
* stop government and municipal theft
* encourage and assist family planning with rewards
* re introduce conscription for community service that pays for learnt skills
* root out the corruption in the education .sector
* include environmental sustainability in our education system

And lastly…make ALL South Africans proud to be South African again.

On paper it sounds common sense. In reality it’s a pipe dream when you dealing with a “it’s my time to eat” generation leading on to a instant gratification generation. I love South Africa and can’t see myself moving but my money is on the first plane out.

Mac, I agree except with your timeline of 10 years, it’s 26 years, from the time Mandela took over! With the amount of experience(none) and capability(very little) they would have had more chance of success taking over IBM/ Ford/ Coca-cola,etc, than running SA Inc. That’s not even mentioning the cultural ingredient’s required!

They weren’t ready, still not!

Again promises of fiscal consolidation and structural reform. We have heard it all before Tito. You speak an A game but unfortunately your “comrades” continue to speak to EWC, even more radical BEE (proven by the changes to BEE law tabled by YOUR party).

The structural reforms that FDI requires to invest has got nothing to do transformation or equality, but with the re-enforcement of the principles of property rights, easing labour laws and to some extent clean governance.

For me I have moved all investments directly in my control overseas and it has been the best decision I have made in a long time. The closest I get to investing in South Africa is Tesla, although I suspect Elon Musk does not consider himself South African.

“ You speak an A game but unfortunately your “comrades” continue to speak to EWC”

Well there’s something for everybody then? Lol!

Looting/corruption = loss

The NPA do not have the resources and expertise to prosecute the corrupter s and thieves. Most will get away with the loot. All the experts left when Scorpions were disbanded.

Yes, and until they have the willpower too, nobody will be prosecuted either. State capture via the Zondo commission will more than likely be whitewashed too.

Ahhh there it is, the unions bosses hanging onto the loo handle, dancing and singing as they go down to the gurgle of the water turning the corner.

It is time for a new approach. Like a hairdresser’s income is determined by the number of people who come for a haircut not the number of hours spent in the salon. Similarly, civil servants and all other workers for that matter should be paid for what they produce not time spent at work. Can you imagine how much shorter the ques would be when renewing your license or querying your municipal account! Just imagine!

While I agree with your comment, my experience with home affairs was the technology. I had to go back about 4 times because the computers were continually offline or the camera didn’t work or …. You can have the most energetic staff member who cannot function when the electronic systems don’t work. It seems that government’s reaction to this is to hire more people instead of identifying the problem and fixing it. And then appointing a disproportionate number of supervisors and managers – because of course, nobody wants to actually do the work.

In a country like the UAE where crime is relatively under control, public service centers work 2 7 hour shifts starting at 10am and ending at 2am.
its not a typo but fact, i once change car ownership at 1am in the morning, vehicle testing, new insurance drawing R200,000.00 at the ATM for my newly acquired car and everything done within 30min.

As a South African we struggle to comprehend this, that is public service which allows business transactions to occur as speed in an enviroment built towards growth.

Back in SA the same old excuse, “The System is Down”, what a bunch of losers who have the inability to contribute anything meaningful to society. I think the ANC has lost control and are afraid to admit to it.

R2t is not a problem for the ANC Tito has just given them their 10-year target. Add pensions, PIC, GEPF and anything else you can think of, and they probably have access to another R8t at the stroke of a pen; barring a few groans from select media and public interest groups, but nothing to worry about. The future looks bright for all comrades.

That is getting awfully close to the value of that GEPF. Better get the prescribed asset legislation in quickly. The ANC can’t waste another minute not getting their hands on that cash otherwise they might just be voted out and end up in jail.

Agree. And that’s also why ANC is intending to promulgate a 3-year waiting rule, after an expat became a non-resident in another country post-emigration, before he/she can withdraw/transfer their pension abroad.

By that time, say 20% of the expat’s fund will be available to transfer, while 80% is ‘locked in’ for prescribed assets’ ‘social funding’…

The chicken cage is being wired off, so that when the prescribed assets jackal arrives, all the roosters cannot go anywhere.

In the medium to long term good to go short anything that is heavily dependent on the mass of the civil service to be sustainable. Either there is a mass reduction in civil service pay & headcount or there is a debt crisis – so either way you gain. Some of the retail focused banks & lenders probably a good bet to get out of or for a long term short.

On the GEPF – I would rather see Treasury grab money from the GEPF than through private retirement funds in terms of the proposed Reg 28 changes. GEPF beneficiaries are absolute kings when it comes to retirement returns with that defined benefit scheme.

Stop stealing , stop wasting money on insane schemes , cut total government and admin costs by at least 60 % , scrap BEE and all its family , scrap minimum wages , scrap most of the LRA so that useless persons can get fired without time waste and unions can be sued for damages inflicted by illegal and criminal conduct, reduce size of government , allow private electricity providers , scrap SAA , get policing and the courts functioning, start controlling borders and goods and people movement and thereafter get the hell out of the way of entrepreneurs for at least 20 years. The utter mess the ANC created might be fixed after that time.

R10,000,000,000,000!

It’s R10 with TWELVE ZEROS behind it…..off my calculator.

With hyper-inflation a possibility in SA’s future, should we be buying calculators with 18+ digits, instead of the usual 10 or 12-digit screens??

Won’t be long, then we’ll hear about a QUADRILLION rands of wastage.

…and then followed by QUINTILLION, before we hit SEXtillion.

And yet “Former eThekwini Mayor Zandile Gumede has been sworn in as a member of the KwaZulu-Natal legislature after the passing of Ricardo Mthembu.

The move has raised a few eyebrows as the former mayor and 16 others currently face a string of corruption charges linked to tender fraud valued at close to R400 million.

But the African National Congress (ANC) said that her appointment formed part of its programme to empower women.”

https://ewn.co.za/2020/08/19/gumede-appointment-to-kzn-legislature-part-of-programme-to-empower-women-anc

So nothing new here, same old same old…

Blah, Blah, Blah….

Yes, Beachcomber, their brazenness knows no bounds and the ANC has no shame. As the speaker of the house once said on Television in answer to a question as to why Tony Yengeni was appointed to a position to look into corruption in government, “We in the ANC have different standards”!

Now put that in your BLM pipe and smoke it.

Live locally, invest globally. Just pretend you’re an expat here and keep your international options open. Hoping for a different trend in SA is futile. The people of SA vote for this lot, and it seems we cant change their minds. If people really felt it was governments fault we would’ve had a revolution a long time ago..

End of comments.

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