/ 26 October 2022

Treasury lauds success of fiscal consolidation efforts

Medium Budget 2022
Finance Minister Enoch Godongwana. (David Harrison/M&G)

By the end of 2023, government revenue will exceed spending for the first time in 15 years, heralding what the treasury views as the success of its fiscal consolidation project. 

The country’s gross loan debt is also set to stabilise at 71.4% of GDP in the 2022-23 financial year. This is two years earlier and at a lower level than expected in the February budget, according to the medium term budget policy statement tabled by Finance Minister Enoch Godongwana on Wednesday.

In his February budget, Godongwana indicated that fiscal consolidation efforts were drawing to a close, with the state set to achieve a primary budget surplus by 2023-24, a year earlier than expected.

According to the medium-term budget policy statement, the improvement in the pace of debt stabilisation is largely a result of higher-than-anticipated inflation and the commodity-driven revenue windfall.

The improvement will be partly offset by the government’s plan to take over a large chunk of Eskom’s staggering R392-billion debt.

Speaking at a media briefing ahead of Godongwana’s speech on Wednesday, acting treasury director general Ismail Momoniat described the upcoming primary budget surplus as “a great achievement”.

“That begins to flatten the debt to GDP. So we begin to stabilise that … I think we have been really successful on fiscal consolidation. And in a sense we will begin to enjoy the fruits of that from next year and beyond,” Momoniat said.

“Now that debt has stabilised — yes, even when you take into account the Eskom debt — what the minister has outlined is that we can put more money into infrastructure, into social services. Infrastructure is growth enhancing. So you’ve got a very positive outcome.”

In his speech, Godongwana stressed fiscal prudence. 

With the global economy slowing, inflation climbing and financial markets more volatile, debt-service costs are estimated to be close to R6-billion higher this year than projected in the February budget.

“Moreover, the possibility of a major price correction in financial markets is a significant risk. This will affect fiscal revenues going forward,” Godongwana said.

“It is for this reason that the medium-term strategy needs to maintain a prudent approach to fiscal policy. We need to decrease our debt burden and debt service costs by reducing our annual deficits. This will stabilise the public finances and reduce fiscal risks.”

A portion of the revenue windfall will be used to reduce the budget deficit over the medium term, as well as to address fiscal risks flagged in the February budget. These risks include higher-than-anticipated debt service costs, the public sector wage bill and the materialisation of financial risks from some state-owned entities.

Over and above the government’s commitment to take on a portion of Eskom’s debt, the treasury has allocated R23.7-billion to the South African National Roads Agency to settle maturing debt and debt-related obligations, as well as R5.8-billion to Transnet.

Denel will be allocated R204.7-million to reduce its contingent liabilities and, if conditions are met, R3.4-billion to complete its turnaround plan.