In presenting the National Treasury Budget Vote in a virtual National Assembly mini-plenary sitting yesterday, the Minister of Finance, Mr Tito Mboweni, said section 216 of the Constitution of the Republic and the Public Finance Management Act clearly spell out the role of the National Treasury.
That role, he said, is that in each year, the National Treasury prepares an Annual Budget which is delivered in February and a Medium Term Budget Policy Statement which is also traditionally delivered in October. This year, he said, the circumstances have also required the National Treasury to prepare a Supplementary Budget which he delivered in a hybrid sitting of the National Assembly in June.
Mr Mboweni said the Budget Vote that the mini-plenary sitting considered yesterday was in support of the constitutional and legal responsibilities, underpinned by the strategic objective to “improve living standards”. He said: “I cannot overstate the urgency of this task in the context of the current global pandemic, and the economic devastation it has brought with it.”
He said the country needs a strong National Treasury, staffed with the best the country and the world have to offer. He told the virtual plenary that the National Treasury has set itself a three-pronged strategy, and one of those strategies is to achieve sustainable public finances. “The National Treasury is on a mission to restore fiscal strength. This is a minimum condition required to prepare South Africa for the next pandemic or economic shock,” he said.
He said the second prong is to strengthen the sound financial controls and management of public finances across the public sector. “Our historic response to this pandemic would not have been possible had it not been for the cooperation across all arms of the state, facilitated by good financial control, including the provincial MECs for Finance, whose support I highly value. In this regard, effective intergovernmental relations are critical in ensuring that all arms of government work closely together to deliver on improved living standards for all.”
Mr Mboweni said the last prong is to advocate for sound economic policy in line with the President’s direction. “We intend to strengthen our macroeconomic policy framework, facilitate regional and international cooperation, and continue the roll-out of our improvements to the system of financial regulation.”
There is an agreement that economic growth is urgent. One of the key projects that the National Treasury will be driving is to work closely with the rest of government to drive a package of reforms to improve productivity, lower costs and reduce demands of state-owned companies on the public purse. These measures, he said, include finalising electricity determinations, unbundling Eskom and taking other steps to open up energy markets, modernising ports and rail infrastructure, and licensing spectrum.
On fiscal outlook, he said there is a team in the National Treasury which is working tirelessly to deal with the ballooning public debt. “The public finances are dangerously overstretched. Without urgent action in the 2021 budget process, a debt crisis will follow. Failure to contain debt, the budget deficit and debt service costs will damage the country’s long-term economic prospects.”
He reminded Members of Parliament that the supplementary budget projected that tax revenue would be R304.1 billion less in the current year, compared with the 2020 budget estimate. He said revenue shortfalls include tax relief measures amounting to R26 billion in foregone revenue implemented as part of the Covid-19 relief package.
“More significantly, the shortfall reflects the expectation that the tax base will temporarily shrink as businesses close and people lose their jobs.”
He said as it was set out in the supplementary budget, the gross borrowing requirement has increased to R776.9 billion. Gross national government debt, he said, is projected to increase to R3.97 trillion (or 81.8% of GDP) in in the current year. “This increase in debt means that we now budget for a direct charge of R236 billion for debt service costs, which is R7 billion more than we budgeted in February. Debt is expensive.”
Furthermore, he said: “We have continued with our efforts to mobilise funding from multilateral institutions, to date the New Development Bank has approved US$1 billion (R16.6 billion) from its Emergency Assistance Program and the African Development Bank has also approved a loan of approximately US$288 million (R4.8 billion).”
He reported that the government has also applied for US$4.2 billion (R69.7 billion) from the International Monetary Fund under the Rapid Financing Instrument that will be used to provide for direct budget financing and, he said, negotiations with the World Bank are still underway and more details will be provided once transactions are concluded. “We expect to raise a total of approximately US$7 billion (R116.2 billion) as indicated in the supplementary budget.”
By Mava Lukani
23 July 2020