Lukewarm response to Godongwana’s balancing act that cues spending reform

21 Feb 2024

Budget big ticket items include the Reserve Bank’s forex contingency reserve’s R150bn to deal with debt, a R1-trillion infrastructure spend over three years and no direct tax increases for hard-hit consumers. But in the background, reforms are emerging to ensure effective government spending.

Finance Minister Enoch Godongwana told Daily Maverick that his Cabinet colleagues for the first time “almost unanimously” backed him. And his director-general Duncan Pieterse, appointed in August 2023, said of his maiden Budget, “I have enjoyed it.”

But opposition parties described Godongwana’s balancing act as “disappointing”, “uninspiring”, “an electioneering Budget”, “a bailout for the ANC” and a people-pleaser.

Concerns were specifically raised over shifting R150-billion from the SA Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which ACDP MP Steve Swart described as “plundering our reserves”.

A framework will be finalised between National Treasury and the South African Reserve Bank (Sarb) and draft legislation was tabled with the Budget in Parliament on Wednesday. Both are measures against potential dodginess.

Read more in Daily Maverick: Finance Minister Godongwana’s juggle to sidestep tax hikes in an election year — and balance the government books

South Africa’s debt service costs need urgent attention; some 21 cents in every rand are spent on repaying debt.

At R382.2-billion in 2024, debt repayment is the second largest expenditure after the R387.3-billion spent on social development, followed by Basic Education (R324.5-billion) and Health (R271.9-billion).

Reducing debt is key.

But DA MP and finance spokesperson Dion George wasn’t convinced: “Resorting to the GFECRA as a fiscal stopgap will diminish South Africa’s standing among global investors and suggest to policymakers the erroneous notion that fiscal discipline can be forsaken for expedient solutions.”

While the lack of bailouts for state-owned enterprises was welcomed, he added in a statement that more could have been done for consumers by increasing the number of zero-rated products.

IFP MP and finance spokesperson Mzamo Buthelezi didn’t mince his words in an interview with the SABC, expressing concern over releasing the GFECRA funds, given that all departments were underperforming.

“I think he just wanted to put a Budget that would please people.”

Read more in Daily Maverick: No new money allocated to basket-case state-owned enterprises by Godongwana

EFF MP Veronica Mente said that dipping into GFECRA at this stage would not solve the misspending and incapacity of the current administration.

“We are told we will slow down on borrowing, but we are not stopping borrowing.”

Freedom Front Plus finance spokesperson Wouter Wessels said in a statement that dipping into the GFECRA was “extremely problematic. A government that no longer plans for future contingencies has already failed”.

According to ActionSA leader Herman Mashaba, the Budget continued with misguided spending priorities.

“This is the Budget of a ruling party that has run out of options after decades of mismanagement and dismal economic growth,” he said in a statement.

Business Leadership South Africa welcomed the Budget.

“(Godongwana) delivered a strong Budget that commits government to appropriate spending levels given the weak economic outlook. This is positive for business, which needs reassurance that fiscal discipline will be maintained, despite pressure for increased spending from many quarters of government.”

Krutham analyst Peter Attard Montalto said via text message that National Treasury “is solving the macro budget problems very well given the constraints”, but much is outside its control when it comes to spending.

“Cabinet is not making the difficult decisions necessary to direct spending or expand the tax base faster.”

South African Revenue Service Commissioner Edward Kieswetter supported Godongwana’s approach.

“A well-functioning tax administration within a growing economy is the most sustainable path towards improving the country’s fiscal integrity,” he said in a post-Budget statement.

Financing changes

While the Budget raised social grants such as pensions and childcare grants, it wasn’t enough for the governing ANC’s alliance partner, trade union federation Cosatu.

“Treasury treated Budget as little more than a bean-counting exercise and failed to seize the moment to respond decisively to the myriad of challenges workers, society, the economy and the state are facing,” said Cosatu, disappointed about what it called an “underwhelming” Budget.

However, the labour federation welcomed the GFECRA release of R150-billion – and the R943-billion infrastructure build to 2027.

It’s on this front the Budget signalled potentially significant financing and implementation changes – and to attract private sector partnerships.

Draft regulations for public comment were published to support private-public partnerships by reducing “procedural complexity”, introducing “clear rules for managing unsolicited bids”, and governing financial risk.

“The intention is to create clearer mechanisms for accountability, cooperation and coordination,” said Godongwana in his Budget speech. “We are also consolidating similar functions to reduce duplication and inefficiencies. The intention is to fast-track delivery, particularly of blended finance arrangements.”

Some of that is concessional loans and infrastructure bonds, but it also seems the Development Bank of Southern Africa (DBSA) is becoming the preferred implementing and financing agent.

Its new financing mechanism, Project Vumela, targets municipal bulk infrastructure, according to the Budget Review. After little progress on the R61.7-billion allocated for urban utilities in the 2022/23 financial year, a new grant for water services will be introduced in April 2025, on strict conditions and deliverables.

“This initiative complements other actions aimed at increasing investment in infrastructure by leveraging private sector resources and expertise to support economic growth and improve the quality of life of South Africans,” said the Budget Review.

Annex D of this review also outlines 11 prioritised water and sanitation projects valued at R139.1-billion, including the second phase of the Lesotho Highlands Water Project. Unsafe water and waterborne illness are an issue in SA, caused in part by persistent rolling power cuts that affect sewage treatment plants.

On energy, Annex D emphasises the 8,000MW of new independent power producer projects totalling R270-billion in investments.

It’s an important note in a seemingly muted stance on the rolling blackouts even if their negative impact is acknowledged. Last year saw the most scheduled power cuts yet, which battered South Africa’s economic growth and left South Africans without electricity for up to 12 hours a day on Stage 6.

Contributions from private embedded power generation projects, predominantly by business, have added 6,000MW to the system. Although the household rooftop solar subsidy ends on 31 March, to date it has added 5,200MW to the grid.

This underscores that where space for private initiatives is opened, significant contributions can be made.

Reducing wastage

Given National Treasury’s focus on cutting wastage and ensuring greater transparency in how government money is spent, grants are increasingly paid over only when conditions and implementation goals are met.

The flip side is cutting underperforming allocations. For example, the informal settlement upgrade grant was cut due to municipal underspending ranging from 48% to 54%, according to National Treasury at the Budget lockup briefing.

Already in November 2023, much of the public transport-related grant to municipalities was cut.

Prepaid meters have been touted by the troubled state electricity provider Eskom as a way to reduce municipal debt. The Budget Review talks of a new R2-billion grant to municipalities for the roll-out of these prepaid meters – on strict conditions and implementation.

If a budget were an apple pie, in the fight for a piece, waste means less for everyone.

Or as Godongwana put it in his Budget speech: “(T)he size and quality of the national pie is what informs and ultimately determines the realisation of our political imperative of redistribution...

“The budgets we have tabled since 1994 have been about securing the goal of growing the economy so that we can do more to address the inequalities and deprivations that still scar our society and undermine the promise of democracy.” DM

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South Africa

Financing changes

Reducing wastage