Regarding the Finance Minister Tito Mboweni’s supplementary budget speech, this past Wednesday. Some of the finance people would say this was a challenging period to present this budget as there were limited available funds to finance all the country’s ambitious projects. By all means, I would also agree but with caution. I think it is additionally an excellent eye-opener to properly understand and reflect on our financial position as a country and therefore demand corrective action.
Is this unique because we are talking about government finances?
The answer is a big, NO. What is happening to our government resources is the same as to what would have happened to the separate households that are experiencing increasing debt levels. They are thus forced to re-examine their spending habits and take the necessary steps to correct the situation.
In 2008, South Africa’s finances were at their sound levels, and they were capable of absorbing the impacts of the then global financial crisis. At the time our SOEs were equally crucial contributors to our national finances, e.g. Eskom and SAA were also profitable. Also, debt levels were reasonably below 30% of GDP, and lastly, unemployment levels were also below 25%. We can see from the above that all the highlighted key economic indicators were moving in the right direction.
What represents the current situation?
Credit rating agencies have downgraded the country to junk status, so borrowing is an expensive exercise. Interest payments or servicing costs are, therefore increasing, as a result. In addition, our debt to GDP ratio was below 30% in 2008, compared to 62.2% in 2019. It is projected to be 95% by 2024. Continued borrowing was unavoidable because of Covid-19 financial impacts. Also, the shrinking profits on top remain another significant factor and directly contribute to this revenue shortfall. Therefore, it forces the government to borrow or use the contentious pension funds money to finance its projects.
As the minister rightly acknowledges we need to make sure, “we close the mouth of the hippopotamus” because it is eating on our revenue. In my view, I would think the mouth to be closed that of those ailing state entities and considerably reduce our debt levels. To stop supporting those entities that require yearly bailouts, with no improvement. They need to be adequately funded if they can reliably produce a tested turnaround strategy. Also, we need to be bold in reversing corruption and fraudulent activities within our entities because they are eating on our ultimate ability to fund future government strategic projects.
In closing, is the government intends to hold a minority shareholding in the new airline? I would, therefore, think that is the right step in progressively improving our debt levels and for the government to concentrate fiercely on its developmental agenda. Let us redress this imbalance for the future of our country, and it is possible.