Despite multiple promises from government that South Africa’s economic state was slowly but surely improving, experts say the country is experiencing a fiscal crisis – spending more than what is coming in – with no one to blame but itself.
According to Treasury, from 15 September, all affected institutions and government departments must freeze the hiring of new staff, advertising new procurement contracts and spending on catering, among others, until SA’s fiscal conditions improve .
This comes after the 15 August meeting where Cabinet noted that the economic growth outlook had worsened significantly relative to expectations outlined in the 2023 Budget “given the impact of more intense load shedding and freight and port logistical constraints, among other factors”.
Daniel Silke, director of the Political Futures Consultancy and economic expert, said government only had itself to blame for the dismal performance over the last 10-15 years of inadequately using income from taxes and from “other income sources, the misappropriation of funds, poor policy choices, graft and corruption… all of these issues”.
Silke said these issues had wasted the resources and potential savings of South Africans.
He also noted that with the election campaign season starting, government was going to be strapped for cash, which would lead to a lending crisis.
“Our debt to GDP (gross domestic product) is already rising and this could cause a financial strain, not just over the course of next year, but for many years to come,” he said.
“So the poor performance of this government corruption and poor policymaking is finally coming home to roost.
“And the urgency of this has been conveyed to government from the Reserve Bank. The message has gone out to cut expenditure where they can.”
Silke said this was not something any government wanted a year before the election, and certainly not one any government wants “especially as the country is still suffering from severe energy shortages, a lack of confidence in the domestic economy, poor infrastructure spends and poor inward investment.
“All of these issues compound to negatively affect the economy and will affect confidence in South Africa. It will affect the value of our currency, which of course only adds to inflation. So the signs are not good on the basis of this at all.
“It requires a huge policy and mindset shift from the government and, as yet, I’m not convinced it has the ability internally to change economic policy and ideology,” Silke said.
Thokozile Madonko, senior researcher at the Southern Centre for Inequality Studies at Wits University, agreed.
“It’s important to note that the government is pursuing fiscal consolidation which is why we’re seeing these directives around cuts of budgets.
“The most important thing is to look and see who is affected the most by these efforts to stabilise public finances.”
Madonko said research had shown that weakening micro-fiscal conditions were making the goal of debt stabilisation even more distant.
“This is despite the intensifying actions we’re talking about.
“We’re arguing that SA is no closer to consolidating its fiscal position and this is because there is slow growth, interest rates require further cuts and spending.
“Alternatively, we would need to see some structural reforms with tax, for example, to try and counterbalance the rising debt service costs,” she said.
“We’re also arguing that efforts to stabilise the increase in debt take place in a context of policy disarray at the centre of government.
“And this is really the push and pull between what the budget can do, versus what the policy framework is. We are seeing a growing divergence between the budget plans and their execution,” she said.
Madonko said Treasury was starting to see this medium-term expenditure framework as more of a bargaining position rather than an accurate costing of government’s programmes.
“So what we are saying is that the spending targets are set at unreasonably low levels in the annual budget and that these targets are impossible to achieve.
“If they are going to be achieved, there are going to be some major trade-offs,” said Madonko.