Presidential Task Team to stabilise rising national debt

Wednesday, October 25, 2017

A team of Cabinet Ministers has been brought together to come up with solutions aimed at stabilising debt over the next three years, the National Treasury said on Wednesday.

In the Medium Term Budget Policy Statement, which Finance Minister Malusi Gigaba tabled in the National Assembly on Wednesday, National Treasury said government will adhere strictly to the spending limit that it has set itself.

“A combination of fiscal measures and economic interventions is needed to grow the economy, address immediate challenges facing the public finances and reduce long-term risks. A team of Cabinet ministers reporting directly to the President has been established to develop proposals to stabilise the national debt over the medium term.”

The National Treasury said this will include proposals to narrow the deficit, stimulate economic growth and build investor confidence.

The team of Ministers will work to ensure the spending ceiling remains intact in the current year.

“A broader set of asset disposals is also under consideration, along with a restructuring of the portfolio of public assets to reduce risks posed by contingent liabilities. A new framework for the management of guarantees is being developed.  

“Additional measures to reduce expenditure, raise revenue and improve the impact of public resources on economic growth will be announced in the 2018 Budget.”

As a result of revenue shortfalls, the consolidated budget deficit for 2017/18 is expected to be 4.3% of GDP, compared with a 2017 Budget estimate of 3.1%.

The main budget deficit, which determines government’s net borrowing requirement, will be 4.7% of GDP this year. 

“In contrast to projections set out in the last budget, the revised projection is for the deficit to remain at this elevated level over the next three years. On this estimate, gross national debt is projected to continue rising, reaching over 60% of GDP by 2022.”

National Treasury said in this context, government is faced with difficult choices.

“To offset revenue shortfalls and reduce borrowing, the contingency reserve has been pared down to R16 billion over the next three years. This leaves government little room to manoeuvre if risks to the expenditure ceiling materialise.

“Beyond this, it is likely that some programmes will need to be eliminated, or their funding reduced.  South Africa’s stated policy aspirations and its social needs far exceed available public resources. Moreover, there is little space for tax increases in the current.”

National Treasury said over the past four years, government has followed a path of measured fiscal consolidation, aiming to stabilise the debt-to-GDP ratio by reducing spending and introducing tax increases.

The National Treasury said this strategy was met with some success and that it reflected in a narrowing primary deficit.

But debt has continued to rise as a share of GDP as economic growth rates have declined. 

The National Treasury said any new policy proposals, or expansion of existing programmes, should address only the most effective and necessary interventions. 

It said government remains committed to operating within the expenditure ceiling over the next three years.

In the current year, however, the recapitalisation of SAA and the South African Post Office put the ceiling at risk of a R3.9 billion breach. In addition, there are several risks to the fiscus over the period ahead:

- The economy and revenue could underperform projections. The GDP growth outlook may be improving, but the relationship between growth and revenue collection could deteriorate further. 

- Strains and imbalances within the public finances may become more pronounced. The public-sector wage bill has increasingly crowded out other spending and limited government’s ability to increase public employment. 

- Debt-service costs are set to absorb a rising share of revenue. 

- Several years of fiscal restraint have left funding gaps in both infrastructure and social services, reflected in the build-up of unpaid accounts and financial imbalances. 

- Continued financial deterioration of major state-owned companies is a clear and substantial danger to the public finances. –

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