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Godongwana’s GNU budget — the more things change, the more they stay the same

Godongwana’s GNU budget — the more things change, the more they stay the same
Ray Mahlaka
By Ray Mahlaka
30 Oct 2024
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As investor sentiment improves towards South Africa, Finance Minister Enoch Godongwana has renewed the government’s commitment to a path of fiscal consolidation. This path will be anchored by debt and spending reductions and accelerating structural reforms.

In his first government of national unity (GNU) budget, Finance Minister Enoch Godongwana has committed to doing more of the same – mainly slashing government spending, reducing smothering public debt levels and accelerating the implementation of pro-growth and investment reforms. 

This has provided renewed clarity on how public finances will be managed under the GNU, as the new and enthusiastic ministers might, in theory, be committed to Godongwana’s fiscal prudence vision. However, in practice, ministers might lobby for Godongwana to spend more money, undermining any fiscal consolidation promises and putting public finances on a dangerous path. 

Godongwana said the formation of the GNU has not changed the tone or approach in how Treasury manages public finances. “For now, the major parties in the GNU have agreed on fiscal consolidation, but they disagree on the pace of consolidation taking place. The GNU has not affected the tone of the budget,” said Godongwana on Wednesday during the traditional briefing to journalists before tabling the budget in the House. 

Read more in Daily Maverick: The MTBPS is a bit of a cold shower. Why?

It was arguably an easier and more supportive environment for Godongwana to table the 2024 Medium-Term Budget Policy Statement (MTBPS), which indicated his priorities over the next three years. Things are looking far better than they were in February. The formation of a GNU that respects the rule of law and the Constitution has created goodwill around governance in South Africa, the 17-year energy crisis has faded and investor sentiment has improved, as seen in the rand’s bounce and bond yields falling.

This should help the government reduce its debt, which is set to top R6-trillion next year, and make it cheaper to borrow new money – all of which will put its smothering debt position on a better trajectory in the long term. 

Low economic growth


Numbers don’t lie and the MTBPS shows that the road to reforming public finances is still long despite optimism around the GNU. The outlook on the economy’s performance demonstrates this. Treasury has lowered its 2024 economic growth forecast to 1.1%, from 1.3% projected in February. 

The market might interpret Treasury’s growth projections as too conservative and below consensus, since its projections are usually more optimistic. Treasury director-general Duncan Pieterse acknowledged that Treasury’s projections had been too optimistic in the past and would be placed in a position of revising them down. “We now want to strike the right balance and make sure that they are credible. If there is overperformance [in the economy], we will have to revise them every quarter,” Pieterse said at the briefing.

The logistics crisis in the hands of state-owned transport group Transnet is still holding back the country’s exports and economy. Although Transnet is partnering with private-sector investors to improve the performance of the freight rail and port network, progress on this front is moving at a glacial pace. 

Read more in Daily Maverick: A bird’s-eye view of Enoch Godongwana’s economic agenda

Pieterse’s GNU Cabinet colleagues have to deliver the reforms to keep economic growth going. Improvements in the economy’s performance will only reflect from 2025 to 2027 when growth is expected to average 1.8% over this period, up from 1.2%, according to Treasury’s projections.

These projections are still lower than those offered by prominent business leaders, who have projected economic growth of 3% by 2025 if reform measures on logistics, energy, crime and corruption are accelerated.  

With the economy still in the doldrums, Godongwana’s focus will be anchored on reducing government spending and debt, the latter of which Treasury is still having difficulties with. Debt and associated borrowing costs are still rising, going from R5.6-trillion or 74.7% of GDP in 2024/25 to R6.8-trillion or 75% of GDP in 2027/8.

Rising debt (especially long-term debt) and interest costs are bad news since they reduce the government’s ability to fund crucial service delivery programmes. The International Monetary Fund (IMF) has urged Treasury to introduce a debt ceiling, capping it at 77%. Godongwana said debt levels will eventually reduce when Treasury continues to achieve primary surpluses in 2024/25 and over the medium term. About the IMF suggestion, he said: “Our challenge is a [economic] growth problem. Any country that has good performance in economic growth, its level of debt is not an issue. We need to grow the economy to guide our capacity to deal with debt”. 

No bailouts for the Post Office, tackling the wage bill


To cut government spending, Godongwana has doubled down on his “tough love” approach to state-owned enterprises (SOEs) and not awarding them taxpayer-funded bailouts for their survival. In the MTBPs, there was no money allocated for the SA Post Office, which has asked Treasury for an additional R3.8-billion to avoid liquidation. Godongwana said that if money is given to the Post Office, it would be reprioritised or taken from the Department of Communications and Digital Technologies instead of the SOE getting new money.

Read more in Daily Maverick: GNU reality check — key government departments set to receive nominal increases

“We are on that path of ensuring that not every SOE gets money. There is no money on the MTBPS adjustment. We are hoping that the department will reprioritise their budget to deal with the Post Office question. We also need to ask each other about the future of the SA Post Office,” the minister said, inferring that its ownership as a state-owned company might be reviewed. 

To contain government spending, Treasury is targeting reductions in the cost of remunerating South Africa’s 1.3 million public servants. To reduce the remuneration bill it has recommended a programme in which older public servants (about 30,000) voluntarily accept early retirement packages from 2025. If all public servants agree to the package, Treasury has pencilled in a saving of R2-billion annually over the next three years. 

Godongwana believes the economy’s growth and increased investments lie in the government’s partnership with the private sector in areas such as energy and logistics. The next phase of this partnership will move to infrastructure projects. A new feature will be the government offering credit guarantees for private-sector players embarking on infrastructure projects, and motivating them to do so. DM

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