CAPE TOWN – Photos of the rare minister flying economy class in South Africa are about to become the norm, as announced by Finance Minister Tito Mboweni today. The Treasury said South Africa’s budget deficit is going to rise to a nearly two-decade high and its gross debt is set to soar – as a weak economy leads to revenue shortfalls, and bailouts for state-owned companies strain public finances. So civil servant perks are about to be trimmed!
The Treasury also slashed the economic growth forecast for this year to 0.5% from 1.5%.
“This is a serious position to be in,” Mboweni told lawmakers, adding that “difficult decisions” must be made to help stabilise debt, including cuts to spending and a public wage bill that has soared by 66% in the last decade.
In a medium-term budget policy statement, the Treasury said the budget deficit was likely to reach 5.9% of gross domestic product this fiscal year, which runs from April 2019 to March 2020, far above a previous estimate of 4.5%. The projected deficit would be the highest since 2009/10.
It is then seen widening further, to 6.5% in 2020/21, the highest since the Treasury started presenting the consolidated fiscal framework in 2002/03.
Gross government debt was projected to rise from an estimated 60.8% of GDP in the current fiscal year to 71.3% in 2022/23, the Treasury said.
South Africa is struggling to gain economic growth momentum, with the growth outlook clouded by a lack of significant progress on long-promised reforms.
Ministers to fly economy class, buy their own cellphones
Mboweni says there is a need to trim civil servant perks and stop wastages. This will include relooking at how much the public service spends on Ministerial cars, cellphone benefits and ensuring that everyone — including Ministers, the provincial executive and Mayors — travel economy class for all domestic flights.
The Minister said this when he briefed the media ahead of tabling the Medium-Term Budget Policy Statement at the Imbizo Centre on Wednesday.
In the past, Ministers used to travel first class with their assistants. This was changed and currently, Ministers are eligible to travel business class.
Mboweni said government will stop buying cellphones for public representatives and senior managers in the public service. This area of expenditure will be looked at with a view of forcing public servants to buy their own phones and claim for official calls.
He said an audit of how much government spends on cellphones currently stood at R5 billion “on a 12 month basis”.
Mboweni said the desirable sweet spot would be to see the GDP to debt ratio stabilising at 64% in 2022.
The Minister said National Treasury is looking at ways of capping spend on official cars to not exceed R800 000, including VAT.
Mboweni said the problem with the country is that government spends more than it makes.
The rand weakened more than 1% against the dollar after the budget numbers were published. Government bond yields rose.
“The consequence of not acting now would be gravely negative for South Africa,” Mboweni said told parliament. “Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap.”
The finance minister said new cash flow support for state power utility Eskom, whose struggle to supply electricity is a major drag on economic growth, would no longer be in the form of equity but loans.
The government has pledged to give Eskom more than 100 billion rand ($6.75 billion) over the next two fiscal years, with additional aid spread over the next decade.
Sources: Reuters and SAnews.gov.za
(Reporting by Olivia Kumwenda-Mtambo, Wendell Roelf, Mfuneko Toyana, Editing by Catherine Evans/Reuters and Jenni Baxter/SAPeople)