SA in a hole, needs “massive” private sector investment to climb out – Budget 2023

SA’s National Treasury has a well-earned reputation as a pocket of excellence within the country’s poor public sector. Despite a number of changes at the top in recent years, in its new (acting) DG Ismail Momoniat is the safe pair of hands that will give confidence to SA’s creditors, whose support has become increasingly important after the Zuma Era spending spree took the debt-to-GDP ratio from 26% to over 70%. In this unvarnished overview of Budget 2023, Momoniat offers context of a country that’s in a deep hole from which extrication will require a far bigger participation from the private sector. – Alec Hogg

By Ismail Momoniat, Acting Director General of the SA National Treasury

The 2023 Budget marks a significant step forward in re‐establishing sustainable public finances. This year, government will achieve a main budget primary surplus – meaning that revenue exceeds non‐interest spending – for the first time since 2008/09. 

Next year, the consolidated budget deficit will narrow to 4% of GDP – the lowest since 2019/20. In the context of geopolitical conflicts, climate change, debilitating power cuts and mounting spending pressures, these achievements might be easy to overlook – but they should not be easily dismissed.

South Africa suffered enormous damage over the decade of state capture. Soon thereafter, major shocks – the COVID‐19 pandemic, an outbreak of public violence and the escalating electricity crisis – dealt additional blows to the economy, and put the already strained national budget under more pressure.

Healthy public finances can help us build a prosperous future. Yet today South Africa spends more to service its debt than it does on health, social development, or peace and security. There has also been a tendency to favour recurrent expenditure over investment, weakening our growth potential even further.

Over time, stronger public finances will enable government to spend less on debt service, which consumes 18 cents of every rand of revenue, and spend more on developmental priorities, including public infrastructure. The 2023 Budget proposes R254 billion in debt relief to Eskom.  This arrangement, subject to strict conditions, will relieve extreme pressure on the utility’s balance sheet, enabling it to conduct necessary maintenance. It also supports restructuring the electricity market to help South Africa establish a stable, uninterrupted power supply as it transitions to a clean energy future. 

The scale of Eskom debt relief increases government borrowing, resulting in debt stabilising later than projected in the 2022 Medium Term Budget Policy Statement. Public debt is now set to stabilise at 73.6 per cent of GDP in 2025/26 and decline thereafter. In 2022, the economy is estimated to have grown by 2.5 per cent, supported by high commodity prices and strong third‐quarter performances in agriculture and services. In 2023, however, global growth is expected to slow, commodity prices are declining and there is no immediate end in sight to power cuts.

The economy needs massive private investment to grow and thrive.  To support investment, government continues to provide a clear and stable macroeconomic framework. Reforms to cut red tape, improve efficiency and encourage investment are under way, with a focus on electricity and transport. But faster implementation is needed to lift economic growth.

Budget allocations strengthen state capability, increase infrastructure investment, and boost the fight against crime and corruption. The social wage continues to receive the bulk of public resources through the budget. 

Prudent fiscal management and well‐considered trade‐offs must be important features of future budgets if these gains are to be maintained.

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