Finance Minister Enoch Godongwana and the National Treasury made a firm commitment to fiscal consolidation and reducing South Africa’s budget deficit to single digits, with the presentation of the 2021 Medium Term Budget Policy Statement (MTBPS) on Thursday.
This follows the financial fallout from Covid-19 last year, and comes despite a windfall in revenue this year, largely due to more taxes from the commodity price boom.
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“Fiscal consolidation is critical to reducing the burden of public debt, restoring investor confidence and avoiding overexposure to domestic and international risks,” declares the MTBPS, Godongwana’s first budget-related presentation in Parliament since who was appointed Minister of Finance in August.
“The MTBPS proposes to maintain moderation in public spending. The government will not commit to new long-term expenditures in response to temporary windfall revenues, ”he says.
“No additional financing is provided to state-owned companies in the medium term,” the statement underlines.
“The government remains committed to reducing the budget deficit and stabilizing the [country’s] debt / GDP ratio ”, he reiterates.
“The government will use part of the increased tax revenues associated with the recent increase in the price of raw materials to reduce the deficit and provide [support] the most vulnerable, and cover the higher costs of the public service salary agreement ”, he adds.
According to the MTBPS, SA’s consolidated budget deficit is expected to shrink from 7.8% of GDP in 2021/22 to 4.9% of GDP in 2024/25.
Following the financial fallout from Covid-19, Godongwana’s predecessor, Tito Mboweni, forecast in an emergency budget in June last year that the country’s budget deficit would rise to a record 15.7% of GDP.
With locks relaxed and the economy ‘opening up’ in the second half of last year, Mboweni in his February 2021 keynote budget speech revealed that the 2020 budget deficit was expected to be less than 14% of GDP.
Following the revision of South Africa’s 2020 GDP data, which now shows a 6.4% decline, Godongwana confirmed on Thursday that the 2020 budget deficit was much better, at 10% of GDP.
However, the government has committed to reducing the budget deficit even further, to half of this figure (10% in 2020) by the end of the Medium Term Expenditure Framework (MTEF) period.
“For the next three years, spending will continue to be restricted. To avoid a widening of the budget deficit, changes in spending will be financed through better revenue performance or by reprioritizing and reviewing existing programs, ”says MTBPS 2021.
“Barring new major shocks or unbudgeted spending commitments, staying the course will lead to a primary fiscal surplus in 2024/25, ending fiscal consolidation at the end of the MTEF period,” he adds.
The Treasury said that this consolidation will be supported by structural reforms to unlock private sector investment and job creation.
He also highlighted the progress being made in terms of the structural reform plan for Operation Vulindlela:
- The acquisition of additional electricity generation capacity through the fifth bidding window of the Renewable Energy Independent Power Producers Acquisition Program is expected to add 6,800MW of renewable energy to the grid in the medium term.
- Raising the licensing threshold from 10 to 100 MW has made it possible for private power generators to sell directly to customers. This will reduce the pressure on the national grid.
- The National Port Authority of Transnet has formed a partnership to improve incentives for efficiency and competitiveness.
- Transnet Freight Rail to allow third-party access to the freight rail network by the end of 2022.
- Allow private rail operators to use the freight rail network. This will boost the volume and capacity of the system.
- The now completed eVisa system will be rolled out in 15 countries in March 2022, providing much-needed support for the sector.
- The National Water Resources Infrastructure Agency is being created to improve the management of bulk water resources.
- The application process to issue single-use water licenses is accelerating to meet the 90-day target by March 2022.
- Work is underway to standardize and improve processes for applications to access ownership in the deployment of towers and fiber to expand the digital communications infrastructure, which will be completed in October 2022.
- A review of the public-private partnership regulations completed in May 2021 recommends simplifying regulations, eliminating delays in approval and implementation, standardizing project preparation, and building capacity at all levels of government, to be implemented starting in early 2022.