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SOWETAN | Budget speech rings alarm bells

Finance minister Enoch Godongwana delivers the budget speech on Wednesday afternoon.
Finance minister Enoch Godongwana delivers the budget speech on Wednesday afternoon.
Image: GCIS

Finance minister Enoch Godongwana performed what some economists have described as “a delicate balancing act” in his budget speech that sought to provide hope for the country ahead of elections.

The balancing act was between social expenditure and using money wisely. But amid Godongwana’s optimism, there were several worrying signs about the state of our public finances and the economic outlook.

The first was underscored by the minister’s announcement that the country would for the first-time dip into its R500bn reserves account to draw down money to use for servicing debt and lower the country’s growing budget deficit – expenditure exceeding revenue.

He said the higher budget deficit means that debt-service costs in 2023/24 have been revised higher – by R15.7bn to R356bn.

“Debt-service costs will absorb more than 20% of revenue. To put this into perspective, spending on debt-service costs is greater than the respective budgets of social protection, health, or peace and security,” he said.

He said the dipping into Gold and Foreign Exchange Contingency Reserve Account held by the SA Reserve Bank would put the country in a position to continue to protect core services. This, however, comes with questions on the long-term solutions given that the reserve is from currency depreciation, which means if the rand appreciates against foreign currencies in future the reserve would be wiped out.

The second alarm bell is the continued sluggish growth of the economy, which according to the minister, is now estimated at 0.6% of GDP in 2023, down from 0.8% growth estimated during the 2023 medium-term budget statement.

With growing high levels of unemployment in the country over the past few years, the lack of growth in the economy is a huge concern.  This is because economic growth is a major factor that can stimulate job-creation.

Godongwana said between 2024 and 2026, growth is projected to average 1.6%, but this is a far cry from a 2.5% forecast in 2022.

The third concern is the decline in tax revenue coupled with limited options that the government appears to have to expand its pool of income. This – while attributed to the weaker economy which has seen a decline in corporate profits and revenue from taxes on mining – may well be another indicator that public finances are in the midst of a thunderstorm.

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