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Rethinking fiscal policy: Can SA break free from austerity to fight child malnutrition?

Dick Forslund
By Dick Forslund
17 Feb 2025
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Twenty million South Africans go to bed hungry each day. Malnutrition is the underlying cause in a third of child deaths, 10,000 a year, while 27% of all our children under five are stunted because of malnutrition.

Budget Day 2025 is upon us. The government’s rising debt costs and the growing state debt will again be used to motivate a harsh austerity programme that started with a public sector “wage freeze” in 2020 and evolved into a “fiscal shock” in 2022.

By now we know the outcome. The Treasury’s fiscal consolidation programme follows all conservative rules, respecting every aspect of “how it must be done” inside the box of post-colonial capitalism where the finance industry is king.

Growth forecasts in the Budget Reviews are defeated by reality. We are in an infrastructure crisis, due to too-small public investments in basics, mal-investments and private-public middlemen partnerships; even due to the theft of components and material for the purpose of reselling them.

The system, of which more privatisation and procurement is a part, and the government’s refusal to challenge any aspect of it, don’t allow for matching mass unemployment with, for example, public investment and employment to repair and maintain failing water and sewerage infrastructure.

But it allows for the glaring disconnect between having half of the fresh water pumped out in towns and cities leaking out into the ground, sewage in the streets of working-class communities… and 11.3 million unemployed and so-called “discouraged work seekers”. As if there is no work to be done.

Finance Minister Enoch Godongwana will argue in his Budget speech on Wednesday, 19 February 2025, that debt service is the cause, necessitating budget cuts. He will follow the script of the 2021 Country Partnership Agreement with the World Bank.

After signing off on that “partnership”, the Treasury committed itself to immediately reach a primary budget surplus (revenues being higher than expenditure if not counting debt service costs), and continue like that until the state debt and budget deficits are 60% and 3% of GDP respectively, as if South Africa were a member of the European Union. 

A new ‘fiscal’ and economic policy rule


Let us put forward a “fiscal rule” proposal different from what the Treasury is thinking of when trying to reinforce such a fiscal policy. We propose a fiscal and economic policy rule that forces the government to end child malnutrition, child deaths from starvation, and stunted growth among young children within three years — i.e. dreaming about something other than “smart cities” while the existing ones fall apart.  

Three years is the standard forward-looking plan in mid-term budgets and budget reviews.

Let children be put at the centre of the analytic, legal and logistical work in the Treasury and other departments. Let economic development projects, procurement, trade policies regarding the export of food (like exporting 98% of highly nutritious macadamia nuts produced every year), taxation and government spending be focused on feeding our children.  

With a child-centered three-year goal in mind, the government’s debt management also has to be changed to break with austerity. The most important reform in that regard is to change the R2.3-trillion large and growing Government Employees' Pension Fund into a truly public entity.

It is the single largest creditor of the government and parastatals like Eskom, but relates to its principal like an investment banker, demanding market rates on all its lending despite running with a R50-billion surplus on average per year for more than 15 years. 

The Alternative Information and Development Centre where I work has for eight years pointed out — not least in discussions with all public sector unions, whether they regard themselves as socialist or not —  that the biggest creditor to the state is a branch of the state.

We have told them that the gigantic state pension fund shouldn’t continue to maximise returns from the government’s debt service when public health and public education are trapped in crisis. It doesn’t need that to fulfil its obligations to members and their spouses.

Table: Ten years of Government Employees' Pension Fund performance. Financial years end in March. (Annual Reports, bottom line added by author).

  • “Income” in the table is net investment income: “The total of payments received from assets such as bonds, stocks, and mutual funds, loans, minus the related expenses.”

  • The lower surplus than usual in 2015 was an effect of a rule change: an incentive to retire the day before retirement day, which saw employees rush toaccess their “actuarial share” in the funds.

  • The stagnation of contributions 2021-2023 reflects the wage freeze and the jump in 2024 represents the wage agreement the year before. Thirteen percent of the public sector wage bill is comprised of contributions to the Government Employees' Pension Fund.

  • The rise in benefits paid in the past three years can be put on the account of early retirements: the Treasury is on a path to reduce staff in public service despite tens of thousands of vacancies, telling the unions that wage deals above the official inflation rate come at the expense of further staff reductions.


The important series in the table is the bottom line. The Government Employees' Pension Fund is the biggest pension fund in Africa. The fund is the largest buyer of shares on the JSE, and — which is the subject matter here — the largest lender to the Treasury.

Via its manager, the Public Investment Corporation (PIC), the Government Employees' Pension Fund owned about 12% of the government’s R4,667.8-billion domestic debts in March 2024. The fund has invested 23.8% of its R2.382-trillion investment portfolio in the government’s debt: R566.3-billion.

Its total investments in the state and parastatals’ debts comprise 28% of its portfolio. The fund is invested with R84.2-billion in Eskom’s permanent debt crisis. Throughout Eskom’s financial crisis the fund’s claim on Eskom has comprised about 20% of Eskom’s debt and unaffordable interest payments.

The Government Employees' Pension Fund’s giant surpluses occur after all defined benefits have been paid to its members and their spouses.

First, the government must negotiate its irrational relation with this creditor. Second, legislators must start working on changing the Government Employees' Pension Fund Act of 1996. It is based in a private pension fund paradigm that treats the state as a corporation that might cease to exist.  

The two main sources of the fund’s income are contributions based on the wage bill, and interest payments on the public sector bonds that fund buys on the market. That interest income comprises more than half of “Incomes” in the above table. The Government Employees' Pension Fund uses a bulk of the incomes from the state to lend more money to the state at market rates, cashing in the old Treasury and parastatal bonds when they mature and buying new ones.

The state pension fund’s relationship to the government can be described with arrows in a circle, or rather in a spiral: it is a dog chasing its own tail, but with the tail mysteriously becoming longer and longer.

The economy that matters


The most important dysfunctionality in South Africa’s economy is widespread hunger and malnutrition. It is debilitating in the short term, middle term and long term in all aspects. Economically, it is an ongoing and growing disaster, but never appears in the first diagnostic chapter of the budget reviews.

The budget reviews ignore what must matter first in any economy on Earth, as noted by Adam Smith, the founder of economics, 250 years ago: people must eat. 

This is why the recent Social Relief of Distress (SRD) judgment in the Constitutional Court that “materially affects over half the South African population” is so important. Coming just weeks before Budget day, it must force the Treasury to think outside of its austerity and debt-service-as-usual box, instead of moving shrinking expenditures around.

Twenty million South Africans go to bed hungry each day. Last year, the Department of Health answered in Parliament that more than 15,000 children every year are diagnosed with severe acute malnutrition. One thousand die directly from it. Malnutrition is the underlying cause in a third of child deaths in South Africa, meaning 10,000 deaths a year, while 27% of all our children under five years old are stunted because of malnutrition.

Mass unemployment paradoxically exists side by side with an infrastructure crisis. People don’t eat enough, and what needs to be done is not done everywhere you look.

In the meantime, the largest creditor of the state is a public entity, continuing to wag the dog with its ever-growing tail.

We propose a fiscal and economic policy rule that forces the government to end child malnutrition, child death from starvation and stunted growth among young children within three years. DM

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