Finance Minister Enoch Godongwana. Photo: Dwayne Senior/Getty Images
South Africa’s high debt and inefficient expenditure have been flagged as key issues driving the country towards a financial crisis, committees in parliament’s finance cluster said during a pre-budget briefing on Monday.
Minister of Finance Enoch Godongwana is due to present the budget to parliament on Wednesday after he was unable to do so on 19 February when the government of national unity failed to agree on the proposed increase in VAT from 15% to 17% to boost revenue.
On Monday, a visibly frustrated Songezo Zibi, chairperson of the standing committee on public accounts, told journalists that the country’s debt and borrowing costs kept rising, but the nation had nothing to show for it, adding that money had been misused to the detriment of social services, including hospitals and schools.
Zibi, leader of the Rise Mzansi party, noted that the government’s debt in the 2023-24 financial year stood at R5.26 trillion, up from R1.79 trillion 10 years ago. Measured in inflation-adjusted terms, the burden of public debt per working-age individual increased to R114 974 in the financial year from R70 074 a decade prior.
“During this decade of economic underperformance, real GDP per person fell from R80 046 to R74 599, underscoring how economic stagnation intensified pressure on households and the broader economy,” Zibi said.
“We cannot discuss the budget while totally ignoring the fact that the government misuses money through bad policy, wastes it through maladministration and loses it entirely through corruption.”
He said, if not properly managed, by the end of the current financial year, South Africa would be paying R447 billion annually to service debt, and that education was the only line item that was “marginally” bigger than the cost to service debt.
“Do we choose to pay debt or do we choose to fund education and health and all these other things South Africans need to access their dignity?” Zibi asked.
“We spend most of our expenditure on salaries, not building hospitals, securing equipment. That equation needs to change. Let us not tell South African people there is no money problem. There is and it’s big. If we are to say, let’s borrow more, then you must say let’s borrow more and then spend more money servicing that debt.”
He outlined how revenue losses were also incurred through water losses, adding that “weak revenue management, a failure to bill consumers, low payment levels and ineffective debt collection undermine the financial sustainability of the water services sector”.
The chairperson of the standing committee on appropriations, Mmusi Maimane told the briefing that debt servicing costs were also draining the revenue meant to fix state-owned enterprises such as power utility Eskom, logistics group Transnet and waterboards.
“Debt servicing costs are higher than government spending on social development, economic development, peace and security and health. It is high and untenable,” said Maimane, who leads the Build One South Africa party.
“When people make the argument that the government needs to spend more — when your bonds are being rated as junk — it becomes a massive crisis to increase borrowing costs because that will stop you from expenditure on other issues.
He said, over the past decade, the government had spent over R520 billion on bailing out state-owned enterprises, singling out Eskom’s debt as a key concern.
“Its debt is projected to peak at R130 billion in the medium term which puts Eskom at a paralysis condition where it cannot fund easily for growth and has to fulfill the obligation of keeping the lights on,” Maimane said, adding that Godongwana’s task now was to focus on growth.
“What the minister will table, in all probability, is a projected growth of around 1.8% over the medium term and, taking lead from the president, we need to be growing at 3% over the medium term in order for us to deal with some of the challenges South Africa faces,” he said.
This was crucial amid the current geopolitical uncertainty and suppressed global growth.
During the briefing, the treasury was also urged to look at the financial sustainability of the social relief of distress grant, introduced at the start of the Covid-19 pandemic lockdowns in 2020 to support vulnerable people, as well as the high cost of salaries paid to government employees and diplomats.
Zibi highlighted that South African diplomats earn more than those from the US and those deployed to the UN, saying these were some of the areas where expenditure should be cut to finance deprived sectors.
“I think it’s time parliament does its job and, in the context of our committee, we can’t just look at the material irregularities all the time. We also have to look at where the money is being spent inefficiently because the Constitution fundamentally states that government money must be spent efficiently,” he said.
“The conversation between the executive and parliament needs to change so that we can make the savings, take the money and redirect it towards development and economic growth rather than asking the minister to borrow more.”
The chairs of the parliament committees said the finance ministry had to make difficult decisions, including whether to push on with the highly contested VAT increase proposed in its abandoned budget last month.
The other question was whether South Africa should choose to put its money towards healthcare in the absence of funding from the US, as a diplomatic row rages between the two countries, or fund peacekeeping operations in the Democratic Republic of the Congo.
Maimane said the issue was about affordability and that “at some point someone has to pay the choice”.
