Brace yourself South Africa, we're in for a rough ride
It is time for South Africa to knuckle down and work together in order to weather any pending financial storms, Finance Minister Pravin Gordhan said in his medium-term budget policy speech in Parliament on Tuesday.
“It requires an extraordinary national effort from all role-players, committed not just to identifying the barriers to progress, not just to proposing solutions, but also to working together, over the long haul,” Gordhan said.
Using the unfolding European sovereign debt crisis as a point of departure, Gordhan noted that although many predicted the worst of the 2008 global financial crisis to be behind the world’s economy, tough times lay ahead.
“We have learnt from the 2008 global crisis that sound fiscal and financial institutions do not provide immunity against job losses in our own economy arising from turbulence originating elsewhere in the world. Nor are they sufficient to reposition our economy on a new growth trajectory that creates jobs, reduces inequality and improves the quality of life of our people,” he said.
While commentators and economists have painted the South African economy as being insulated from the economic crises unfolding around the globe, Gordhan’s comments suggest such ideas have been naive.
Increased spending on infrastructure
In a rather dour address, Gordhan revealed how South Africa’s financial plans would be adjusted ahead of the main budget statement in February next year, including the announcement of a massive plan to increase the development of infrastructure and energy around the country.
To this effect, infrastructure spending in the current year is predicted to be R223-billion, accounting for 7.8% of South Africa’s gross domestic product (GDP), as part of a plan to spend R802-billion in the sector over the next three years.
Infrastructure development plans include R292-billion for the energy sector, R226-billion for transport and logistics, R39-billion for improving existing and developing new health facilities, R32-billion on education infrastructure along with funding towards municipal and provincial housing.
The majority of this expenditure will be financed through borrowing—increasing the country’s debt levels.
Falling revenues and increased borrowing
It is expected that tax revenue will reach R729-billion in 2011, a figure R13-billion lower than originally estimated.
Accordingly, South Africa plans to borrow more from international financial institutions in order to meet its plans to spend over R1-trillion in rolling our governmental programs.
As a result, government debt will rise to 40% of GDP in 2015, as compared to 23% in 2009.
GDP deficit figures for 2011 are forecast to reach 5.5%, dropping to 5.2% in 2012 and moving lower to 3.3% in 2014/15.
Actual GDP growth in 2012 is expected to reach 3.4% and rise to above 4% in 2014.
“While this level of growth is not as vibrant as we would like, it is a base on which to build,” Gordhan noted.
State officials’ belts to tighten
Gordhan was very open about the need to bring the public sector wage bill under control, noting it had risen from 35% to nearly 40% of the treasury’s non-interest expenditure over the past three years. With this in mind he unveiled a proposal for moderate cost-of-living adjustments to public wages from 2012 onwards.
“As the government, we see the need for the same principle of moderation to be applied to ourselves as Cabinet ministers and other political office bearers.
This must also be extended to senior management in the public service and executives of state entities. It is vital that the private sector provides responsible leadership as well,” he said.
Education remains the sector with the highest budgetary allocation, with more than 20% of non-interest allocations.
However, “education and skills levels need to be strengthened as spending increases have enabled a broadening of access to education, but quality must be enhanced”.
The budget for the health department was also increased, with an annual rise of 7.4%, marking an increase from R113-billion in 2011 to R140-billion in 2014.
This includes the funding of National Health Insurance pilot projects planned to be unveiled in ten districts countrywide in 2012.
In conclusion, Gordhan was very candid about the need for all spheres of government to work together in achieving the goals set out in the speech.
“This is a time for united action, for greater urgency and for an unconditional focus on those programmes which will demonstrate to our people that we and the we will change their lives for the better,” he said.