One of the slides that stood out from the presentation – taken from last week’s medium-term fiscal policy statement – was South Africa’s long-term debt repayment profile.
Between financial years 2017 and 2022, this averaged R43.8 billion per year. This is expected to average R192.8 billion per year from 2023 to 2030.
In 2030 alone, it will be over R350 billion.
As the Treasury tries to rein in its spending, notably by controlling the public wage bill, such a profile leaves it little room for error as global financial conditions deteriorate and investor risk aversion increases.
The period of cheap and abundant money is coming to an end.
“South Africa’s debt repayment profile approach will set the tone for the policy,” Khan said in his presentation.
Speaking to reporters afterwards, she explained this challenge in the context of South Africa’s low economic growth profile.
“The Treasury sends a message to all stakeholders that we cannot go wrong. It will be important to maintain market confidence during this period of higher redemptions.
“It would be a test for any taxman, but it is particularly important in the context of the country’s weaker growth profile compared to other emerging markets. They can say ‘we’re not going to let the spending get out of hand…we’re drawing a line in the sand,’” she said.
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At the center of this emerging dilemma is the public sector wage bill.
The government has remained firm on its offer of a 3% pay rise in the face of the threat from civil service unions to reduce their tools.
Government company on bid for 3% pay rise in public sector – strike still possible
Khan said the Treasury realized it had “spent too much on public sector wages…”we need to move to investment, not just consumption”…and that is what has been missing in South Africa since around 2008”.
Name your pick as to why this year stands out, but the global financial crisis and the political rise of Jacob Zuma certainly come to mind.
It is also no coincidence that South Africa’s economic growth rates have slowed dramatically from that time, while its debt burden has soared, leaving the Treasury with its current profile of paying down debt at a time when the economy is just picking up steam instead of growing at a healthy pace.
“It’s not the best use of South Africa’s resources because creating a higher spending bill to take care of those who are lucky enough to be employed does nothing for the growth of the economy in general. There’s an equality argument there too,” Khan said.
“What can you do more effectively with how spending is used to boost everyone’s prospects?” If you spend on infrastructure, you increase growth prospects. And it’s far more likely that most South Africans will benefit from it.
“If you only spend very narrowly on public sector salaries, well, that’s good for public sector ones.”
The message: It’s infrastructure, stupid – and South Africa has been behind that curve for many years.
From pothole-strewn roads in Eskom to Transnet and critical water networks, the underlying infrastructure needed to support faster rates of (hopefully) job-creating economic growth is not just isn’t there.
Instead, much has been wasted on the payroll of a “public service” that hardly deserves the name. It is simply a bad investment, often linked to the corrosive influence of the ANC’s patronage networks.
“What the South African economy clearly needs is growth. And a few years of better growth will do so much for confidence that it will open up all sorts of fiscal possibilities. And it’s absolutely important to grow for investment rather than consumption,” Khan said.
“We’ve had years of consumption leading to growth in spending, and look what a growth record that must show,” she added.
Indeed, the official growth forecast for 2022 is a paltry 1.9%, declining to 1.6% over the medium term. And since 2014, it has been less than 2% per year, except for the post-pandemic rebound of 2021.
Meanwhile, public sector infrastructure spending has declined.
“Public sector capital expenditure decreased by R6.1 billion (-3.0%) between 2020 and 2021, from R204.3 billion to R198.2 billion, representing the fifth consecutive year of decline,” Statistics South Africa recently noted.
Stronger economic growth rates will help right this ship of state. Growing amounts of debt are coming due over the next decade, and urgent action is needed to prevent it from collapsing. DM/BM