The biggest risk to overall financial health is failure to contain the spiralling public sector wage bill. The government is fighting it out in court with public sector unions over its refusal to implement the final leg of a costly wage agreement signed in 2018.
The government has proposed moderate wage increases for the remainder of the wage agreement, and a three-year freeze in public sector salaries thereafter.
“Narrowing the deficit and improving the composition of spending requires reductions in the growth of the wage bill, which accounts for about one-third of the consolidated budget. Salaries for civil servants have grown by about 40% in real terms over the past decade,” the Treasury noted.
High debt service costs also remain a threat to growth, and the fastest growing item of state expenditure, consuming 21 cents of every rand government spends. If the fiscal situation does not improve, South Africa could default on its debt.
“Failure to address the deterioration in the fiscal position could lead to a sovereign debt default, which would result in a reversal of many gains of the democratic era.”
In the special adjustment budget in June, Mboweni warned that SA risked a fiscal and sovereign debt crisis similar to those faced by Zimbabwe, Argentina and Greece, if things continued in the same way.
Economic growth will contract by 7.8% in 2020 but will rebound with GDP growth 3.3% in 2021/22, the Treasury has forecast. The economy will further grow at an average of 2.1% in the three years that follow.
The government is pinning its hopes on a rapid implementation of the economic recovery plan whose main focus is expanding electricity generation, building infrastructure, allocating high-demand spectrum, supporting industrial growth and local manufacturing, and ramping up employment.
TimesLIVE
By Caiphus Kgosana – TimesLIVE