Debt and state-owned enterprises need urgent change if South Africa is to recover, says Treasury in Parly

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National Treasury Director General Dondo Mogajane said the fiscal results for fiscal year 2020/21 showed a budget deficit of 11 percent of GDP.

  • National Treasury Director General Dondo Mogajane said the fiscal results for fiscal year 2020/21 showed a budget deficit of 11 percent of GDP.
  • Chief Director of the National Treasury and Acting Head of the Budget Office Edgar Sishi said debt has become the second largest item of expenditure and will soon become the largest.
  • Deputy Finance Minister David Masondo said public entities continued to pose a threat to the tax authorities as well as to economic recovery.

National Treasury Director General Dondo Mogajane told Parliament’s Standing Committee on Appropriations that while the government is confident in Operation Vulindlela’s ability to put South Africa on the path to economic recovery, levels unsustainable debt levels remained a threat.

The National Treasury briefed the committee on Wednesday morning in a virtual meeting, following a series of economic turmoil, including the nationwide Covid-19 lockdown and the July unrest that destroyed businesses in Gauteng and KwaZulu -Native.

Operation Vulindlela is a “delivery unit” created to accelerate key government interventions aimed at strengthening structural reforms, including a stable energy supply, reduced data and communication costs, a freight and logistics review, a sustainable water supply and a modernized visa regime.

Unity is central to President Cyril Ramaphosa’s political approach and is a lasting legacy from the time of former Finance Minister Tito Mboweni at the National Treasury.

However, cases like Mineral Resources and Energy Minister Gwede Mantashe amending the rules for 100 MW generation license exemptions and conflicting civil service salary negotiations add uncertainty to Treasury plans to hand over. South Africa’s finances measure up.

Attention will turn to Finance Minister Enoch Godongwana’s medium-term fiscal policy statement in October to see how he balances this function with South Africa’s most pressing fiscal challenges.

The National Treasury told the Credit Standing Committee that while monitoring the progress of Operation Vulindlela, South Africa needed public entities and government departments to function more effectively for the unit to deliver results.

Mogajane said fiscal year 2020/21 results showed a budget deficit of 11 percent of GDP or R552 billion, characterized by high government spending and higher debt as South Africa’s growth did not recover.

“Structural reforms are essential for the dynamics of growth rather than higher deficits and new accumulation of debt. Fiscal consolidation is needed to avoid a debt or fiscal crisis, ”Mogajane said.

Mogajane said the GDP, spending and deficit were much worse than the 2020 budget estimates, highlighting the deleterious effect of the Covid-19 pandemic on public finances and the economy.

“Nonetheless, performance was slightly better than expected in the 2021 budget. Compared to the 2020 budget estimates, the main budget deficit was worse than expected by 183.9 billion rand or 4.2 percentage points of GDP,” he said. declared Mogajane.

The Chief Director of the National Treasury and Acting Head of the Budget Office, Edgar Sishi, told the committee that debt has become the second largest item of expenditure and will soon become the largest item of expenditure for the South African government.

“Our debt has, as stated in the past [few] budget deposits and the special adjustment budget in June of last year, has increased quite dramatically in recent years. We are sitting on a debt level of just under 80% of GDP.

“To put it in terms of rand, we owe around 4 trillion rand to various lenders around the world. This debt incurs interest charges and the cost of servicing that debt now amounts to hundreds of billions of dollars. rands, ”Sishi said.

Sishi said that in 2021, the government is expected to spend R 270 billion just on the cost of servicing the debt and will have to be paid before anything else in the fiscus is taken into account. He said the contingent liability is expected to reach R1 trillion by next year.

Deputy Finance Minister David Masondo said public entities continued to pose a threat to the tax authorities as well as to economic recovery. He said South Africa cannot continue to support state-owned enterprises that undermine economic recovery and will cut ties with these entities if necessary.

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