Fiscally, SA finds itself ensnared in a disconcerting pattern. At the core of this disheartening consistency lies the systematic erosion of the credibility of the national budget, particularly over the medium term.
The national budget has grappled with a credibility deficit across multiple years, and the trend is becoming increasingly pronounced over time.
Now that the 2023 medium-term budget policy statement (MTBPS) presented by finance minister Enoch Godongwana has been processed by parliament and incorporated in provincial budgets, the spectacle of fiscal trouble is laid bare, both signalling and emphasising this disconcerting trend.
A retrospective gaze reveals the disheartening journey: In the fiscal year 2008/09, SA’s net loan debt stood at a modest 22.7% of GDP. In 2010/11, the National Treasury expected that debt would stabilise at 44% in 2015/16. However, when we got to 2015/16, the expected stabilisation date was pushed out to 2017/18. In 2017/18 this was once again pushed out, this time to 2020/21, and pushed up to 48.2%. Moving to 2020/21, the expectation was abandoned, and the National Treasury simply stated: “Debt is not expected to stabilise over the medium term.”
Fast forward to the 2023 medium-term budget: the National Treasury said “Government remains on course to stabilise debt in 2025/26, but at a higher level than projected in the 2023 budget.” National debt now stands at about 78% of GDP.
The volatility extends to the realm of revenue projections, where accuracy has proven elusive. Since the fiscal year 2010/11, the National Treasury has over-estimated tax revenue in 11 of the proceeding 13 financial years. Notably, the magnitude of these forecast discrepancies, whether surplus or shortfall, has intensified over the years, casting doubt on the reliability of fiscal projections.
Attempting to rationalise the substantial R56.8bn shortfall unveiled in the 2023 MTBPS as mere routine is a flawed argument. The normalisation of large shortfalls does not mitigate their effect or render them inconsequential, but rather underscores a troubling trend.
Then there is also the issue of possible fiscal gimmickry.
In December 2018, the UK’s Office for National Statistics, which produces the country’s national accounts, changed how it accounts for government-issued student loans. Because a large proportion of student loans will never be repaid, it was deemed more accurate to treat these loans as government expenditure as opposed to government lending. This change reflected the UK’s fiscal health more accurately and improved budget credibility.
Unfortunately, the National Treasury did the opposite this year in its handling of the Eskom bailout. As highlighted by analysts and the Public Economy Project at Wits University, classifying cash payments as debt redemption rather than government expenditure not only skews the primary balance but also sidesteps established expenditure ceilings. This departure from sound accounting principles sets a concerning precedent for the treatment of future bailouts.
Compounding the matter is the Eskom Debt Relief Amendment Bill, which was tabled with the 2023 MTBPS, seeking to transform the “loan” to Eskom from interest-free to interest-bearing. This is being considered against the backdrop of Eskom’s expected after-tax loss of R23.2bn, marking Eskom’s seventh consecutive full-year loss. So, who are we kidding?
The relentless erosion of fiscal credibility renders the budgetary process unpredictable, dismantling the viability of medium-term planning for essential services such as healthcare and education. The effects are felt acutely by South Africans, who bear the brunt of compromised service quality and sustainability.
It is becoming clear that fiscal governance and institutions need to be strengthened in SA, Furthermore, credible statutory fiscal rules need to be introduced. These rules will have to be crafted meticulously to limit fiddling with debt stabilisation dates and levels, and in such a way that restricts possible fiscal gimmickry.
While not an instant cure for SA’s fiscal woes, such measures can pave the way for the restoration of budget credibility and return to medium-term budgeting as opposed to the current “pay-as-you-go” budgeting system.
• Botha, an independent analyst focused on public finance and fiscal policy who is currently reading for a master’s degree at the London School of Economics & Political Science, was a strategic analyst in the Western Cape department of finance & economic opportunities.
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