1996 Budget Borrowing within a framework of good fiscal discipline
The deficit target has fallen again. So South Africa is in a strong bargaining position when it comes to foreign aid, says the deputy director general of finance. Aspasia Karras reports
South Africa has been promised R7,5-billion over the next three years in “foreign aid”, but, says Deputy Director General of Finance Maria Ramos, that needs to be qualified.
Firstly, the money has been committed, but a very small percentage has been used. Secondly, the government’s approach to foreign aid has been to draw a semantic and practical distinction between concessionary loans and grant financing.
Concessionary loans should be viewed in their full context, and can only be accepted after a proper costing exercise, taking all the terms and conditions into account. “Grant financing is an important, but small, source in financing our infrastructure,” says Ramos. Rather than speaking of foreign aid, we should contextualise the issue according to the South African situation.
The developing world abounds with horror stories of the costs of foreign aid, in terms of repayments and the debt trap, but also the undermining of traditional frameworks of sustenance as communities are disempowered.
Ramos says: “This is an inter-generational game; the previous regime did all the wrong things for all the wrong reasons. Debt catches up with future generations; we owe it to them to be responsible.”
The South African debt amounts to R270- billion. Ramos explains that the government’s approach to cutting the deficit is not an exercise in conservative economic practice but rather reflects a rational understanding of the fact that unless the deficit is slowly decreased, much-needed development will be virtually impossible.
The picture she paints is a pragmatic one. “This is the second budget of the Government of National Unity. We have reduced the deficit from 9% to 6% and the latest announcement showed a further improvement. I despair when it is argued that we are pandering to the conservative style of fiscal management. The South African Foundation’s proposal for a 2% deficit is just as unsustainable as the other camp’s proposals to spend, without nursing our debt.”
Twenty percent of the annual budget goes on financing the deficit before spending on development even begins, which does not leave a lot of scope for movement. Debt, as a percentage of the gross domestic product, is 58%, so delivery on basic needs is immediately compromised. The situation becomes increasingly complicated as South Africa enters the global market.
“We are trying to do the right thing in an economy that is trying to internationalise. The global market is not driven by welfare principles; if they sense that something is wrong, the capital that has flown in will immediately fly out, and we do not have the reserves to counteract that,” says Ramos.
The need to get the macro-economic environment to function correctly underpins the government’s approach to grants and financing. The result has been a centralised committee composed of the Reconstruction and Development Programme, the Department of Finance and other players, such as the Department of Housing and the Reserve Bank.
“The committee needs to exist so that central co-ordination can take place, and the sustainability of projects can be measured. The committee ensures that we are borrowing within a framework of good fiscal discipline.”
Essentially, the government wants to ensure aid is not viewed as an additional source of funds, but is used within the Budget. In this way, the government feels that it extracts revenues against the deficit in an indirect way.
“The bottom line remains unchanged,” stresses Ramos. “I do not want to say that we are not in danger of falling into a debt trap, because people then think that they can go overboard on spending; nor do I want to say that we are, because people panic.”
However, the arguments against centralised control abound. Provinces feel incapacitated to raise funds, while non-governmental organisations are up in arms over the increasing difficulties they have accessing funding.
Ramos is pragmatic on the issue of centralised monitoring. “Provinces do not have the right to borrow in foreign currency unless the minister of finance approves and the conditions laid down by the Fiscal and Financial Commission are met … To successfully access the foreign market, a province should have a favourable credit rating, which is understandably difficult when most of the revenues collected by provinces are in rands. It just does not make fiscal sense.”
While the debate about the division of and access to the goods continues, at least one thing is assured; the country is not about to fall prey to the greater dangers of the aid game. Fortunately, South Africa is not in a position to access the International Monetary Fund.
The situation is positive, even in the case of potential World Bank agreements. A memorandum of understanding, issued last month, has outlined the form a relationship between the two parties could take. But, as yet, South Africa does not have a borrowing programme.
“We will consider project finance, provided our objectives and criteria are compatible with theirs,” says Ramos. “We are in a strong bargaining position and we can set the conditions.”