SA's debt rising faster than economic growth – Godongwana

Finance minister Enoch Godongwana says the country's debt has risen too fast and needed to be managed wisely for SA to achieve its fiscal strategy goals.

Godongwana was delivering his medium-term budget policy statement on Wednesday.

He said to achieve these goals, which focus on four key areas and sets out to achieve the fiscal sustainability needed to support inclusive economic growth, debt must be managed better.

"We are anticipating that government debt will reach more than R6.05-trillion, or 75.5% of GDP, in 2025/26. We know that our debt is unsustainable, because debt-service costs have become the largest component of our spending and it is rising faster than economic growth.

"Debt service costs will reach R388.9bn in the current financial year. Put differently, this means for every one rand of revenue that government raises this year, 22 cents of this is paid to debt service costs. To deal with this problem, we have taken difficult steps to reduce the budget deficit," said Godongwana.

He said spending had been restrained while stable tax collection was maintained.

"As a result of our measures, government achieved a primary budget surplus in 2023/24, for the first time in 15 years. The surplus is needed for us to stabilise debt. The primary surplus is not a pot of money. Rather, it is the difference between what government spends, excluding debt service costs, and what government collects in revenue."

He said the country is now collecting more than was estimated.

"...Tax collection for 2024/25 is expected to be R22.3bn lower than what we estimated in February. Over the next two years, the main budget revenue estimate has also been lowered by R31.2bn. In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend.

"Lower revenue also means that we cannot, within the envelope, accommodate all of the demands on the fiscus. Difficult trade-offs, in all spheres of government, will have to be made. By sticking to our debt-reducing strategy and confronting these trade-offs, we can create the necessary conditions for a fast-growing economy that facilitates employment." 

Economic analysts said it will take time for SA to get out of debt, adding that while this happens, other resources are constrained.

"You then say, okay, what biggest share is the interest on the debt, what biggest share is the payments due to public servants, how much money is left to buy actual stuff ... textbooks, bed sheets, vehicles for the police, bullets for the army. So, if that share of the interest is a growing share of your spending, it just means that there’s less money available for everything else. And that’s the reason why he’s trying to manage that down and to get that smaller," said economist Waldo Krugel.

Wits University international law expert Patrick Kadima said when the public purse is constrained, services are not going to be delivered as usual.

"There will be signs that the purse is constrained, and so on and so forth, and services won't be delivered as usual. And that's why the minister of finance here is trying to help the spending, unnecessary spending of government, so that this money can be going to addressing service delivery and so on and so forth."

SowetanLIVE