SA faces a sovereign debt crisis in the next four years that will force it to approach the International Monetary Fund (IMF) for help if fundamental budgetary changes are not introduced, finance minister Tito Mboweni warned on Thursday.
Structural economic reforms are also needed, he said.
By a sovereign debt crisis the minister means that debt will be higher than GDP and that the government will be unable to fund its budget.
Even before the Covid-19 pandemic struck SA, the Treasury, in the February budget, had forecast a rise in SA’s debt to GDP ratio from 65.6% in 2020/2021 to 71.6% in 2022/2023, a forecast that is likely to have deteriorated sharply as a consequence of the devastation caused by the pandemic to the economy and tax revenue.
Responding to the debate in the National Council of Provinces on the Appropriation Bill, Mboweni said that going to the IMF for assistance in the context of a sovereign debt crisis would mean that the fund would take over the country, including the public service and pensions, and would impose structural reforms.
“A sovereign debt crisis is a very serious matter and we are looking at it in the eye if we do not redo our budget and if we do not manage our finances carefully. We can no longer spend the way we were spending before, we can no longer do things we hoped to do before,” he said.
“The situation has radically changed, therefore we need to refocus our attention and begin to seriously consider the zero-based budgeting (ZBB) system, which basically means that we start with clearly articulating our priorities and allocating funds according to our revenue base, avoid borrowing to fund the gap, and live within our means.”
ZBB does not use the previous year’s budget as a baseline for budgeting and would allow for a fundamental rethink of budgetary allocations to departments in terms of strategic priorities.
“We must start from scratch, prioritise infrastructure and growth-enhancing [activities] and try to reduce all expenditure that is not required, which we thought we could afford but which we cannot afford,” the minister said in a recent debate on the Appropriation Bill in the National Assembly.
Mboweni will table a supplementary budget in parliament on June 24 that will take account of the devastation inflicted on the economy by Covid-19 and the substantially lower revenue expected this year. Sars has forecast a revenue loss of R285bn compared with the February budget estimate.
“We will need to make some very serious and unusual changes to the budget,” Mboweni said, noting that SA is much poorer as a result of the pandemic and expectations will have to be adjusted.
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