Finance minister Enoch Godongwana has warned that he won't be bearing good news when he delivers the medium-term budget policy statement on Wednesday.
Godongwana told delegates at the Kgalema Motlanthe Foundation annual Drakensberg inclusive growth forum that unless spending cuts were introduced, the government ran the risk of running out of money by March next year.
He said the cuts would not be as severe as initially expected because the government had to borrow more funds.
“The intensity of load-shedding has been more pronounced, logistics have become much more difficult ... from the first quarter revenue [has been falling] ... which means I don’t have money.”
Last month the Sunday Times reported that the National Treasury had written to government departments telling them of the introduction of spending cuts. The steps include a freeze on advertising new appointments, a drastic reduction in spending and a call on departments to fund increases for public servants “within departmental baselines”.
On Friday, Godongwana said in addition to localised problems, the Lady R scandal had affected the economy as “everybody became scared that we’re likely to have secondary sanctions”.
The problem with debt is not its size, it's the capacity of the economy to service it ... our ability to [do this] is becoming constrained
— Finance minister Enoch Godongwana
“Markets tightened and even on the borrowing side ... there’s less revenue. That’s my pain.”
Godongwana said this had happened while spending was growing. The Treasury would have to find a balance, he said.
“If we project the loss of revenue over the next few months up to the beginning of the year, we are going to have a serious challenge ... the Reserve Bank says sooner or later we’re going to run out of cash.
“What has happened to public debt? It's about R4-trillion, it’s massive. What that means is that with every rand that we collect, about 18c goes into servicing debt. A complicating factor is that our costs of borrowing have been rising, for a number of reasons.
“Another complicating factor, which came with the downgrading, is that foreigners are not buying our bonds any more.
“The problem with debt is not its size, it's the capacity of the economy to service it. In this environment, our ability to service that debt is becoming constrained and therefore we’ve got to do something about it.
“If we don’t do anything we won’t have cash by the end of March, starting from December.”
Godongwana said the government had been forced to bump up borrowing — more than expected — because of rising expenditure.
“If we didn’t do that, the cuts would have been more massive. So we’re going to do a combination of both.”
Godongwana spoke after the foundations’s patron, former president Kgalema Motlanthe, urged the country to look at the Mexican example to create jobs. There, the focus was on developing tourism as a job-creation sector, cutting unemployment to about 2%.
“Mexico is a country with a population of 128.5-million people and has achieved an unemployment rate of a record-breaking 2.7%.”
He said in developing the tourism industry, Mexico had three main goals: one, earning foreign exchange; two, creating jobs; three, diverting internal migration towards tourism development programmes.
“The 2008 article 'Economic and Social Impact of Tourism in Mexico' in the Latin America Perspectives journal explained that Mexican tourism development was state-led with major investment in infrastructure and capacity-building as well as creating an enabling environment in which the informal sector could trade and grow.
“The article demonstrates the impact of Mexico’s state-led tourism development on reaching its national goal which significantly expanded employment-creation in tourist services such as restaurants and hotels, and in the construction of tourist accommodation and attractions, and local infrastructure in tourist centres,” said Motlanthe.
He said to achieve this, there was a need to strengthen local government. This should start with correcting the “skewed” budget allocations in which national and provincial government get the lion's share of resources.
“If we don’t pay attention to the need to strengthen local government, nothing will work.”
He said there was a need to build capacity in local government by employing skilled professionals in key positions.
“It is important to try over time to work towards a better-skilled local administration in the municipalities and do away with this conflation of elected public representatives pretending to be administrators,” said Motlanthe.
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