22/02/2017 21:40 SAST | Updated 23/02/2017 12:20 SAST

South Africa, Our Money's In Deep, Deep Trouble

Finance Minister Pravin Gordhan and National Treasury are pretty clear about our fiscal health. And it ain't exactly sprightly.

Mike Hutchings / Reuters
Finance Minister Pravin Gordhan delivers his 2017 Budget Speech to Parliament in Cape Town, South Africa, February 22, 2017.

"Our financial situation is difficult, but we have still produced a credible budget," Finance Minister Pravin Gordhan told MP's in the National Assembly when he tabled his seventh budget on Wednesday.

Given the dire state of affairs in our economy and national accounts, and given the almighty political onslaught against them, it is a miracle that Gordhan and national Treasury were able to produce a budget that looks semi-workable.

It is clear we're in trouble -– Gordhan had almost no room to manoeuvre and the only way to dig South Africa out of the hole it's dug for itself is strict expenditure control and tight fiscal discipline -- something Gordhan and the Treasury's opponents aren't fans of.

Consider these risks identified by Treasury:

  • Despite tax increases, government will collect R30 billion less in revenue in 2016/17 than projected.
  • There are serious concerns about the South African Revenue Service's ability to collect tax, leading to questions about South Africans' willingness to pay.
  • Policy changes without consideration of affordability means the shifting of resources away from some programmes to those that are unplanned for.
  • Poorly designed, and ineffectively delivered projects without financial modelling have far-reaching consequences.
  • Substantial unsettled debt between different spheres of government causes financial imbalances.
  • The large public-sector wage bill has "crowded out" other expenditure items limiting government spending in other areas.
  • Our massive foreign debt, nearing 51% of GDP. Interest payments is the fastest growing item in the budget – for every R1 collected by government, 13c is used to service debt.
  • Poorly-run state-owned enterprises, like the South African Airways, "has the potential to weaken fiscal sustainability".

Treasury, and Gordhan by implication, has been accused by opponents in and outside of Cabinet of keeping too tight a fist on government greenbacks and blocking transformational projects. But in his Budget speech, Gordhan hammered away at profligacy, repeatedly saying the long-term health of the fiscus is crucial.

The budget, economically and politically, is a fine balance between maintaining necessary government spend and responsible management of the fiscus.

"Acting too quickly to reduce the deficit would harm service delivery, delay economic recovery, and compromise tax revenue collection," Gordhan said.

He continued, warning: "But to ignore our fiscal targets would result in interest rate hikes, unsustainable commitments and credit rating downgrades. This is a scenario in which short-term gains would quickly give way to financial stress, capital flight and cutbacks in service delivery."

Gordhan's advisers explained the minister was trying to explain the import of creating a fiscal framework that is manageable and sustainable "so that our children won't have to pay for excessive spending today".

With government debt now standing at R2,2 trillion (that's 12 zeroes, or R2,200,000,000,000) we can hardly afford to go on a splurge with, say, Russian nuclear power stations. And Gordhan realises that.

"Across all three spheres of government, and in state-owned companies and public entities, those responsible for deciding how money is spent have to do so with scrupulous rigour and care," Gordhan said.

And then the kicker: "It is only right that if households and firms face tough choices in balancing their income and expenses, the same disciplines must be applied in public expenditure."

Gordhan tried extremely hard to explain economic basics to his Cabinet colleagues and line manager. If this isn't a reality check, nothing will be.