The country’s strained finances and high debt levels will likely come in to sharp focus as the president addresses the nation this evening.
President Ramaphosa’s address should set the tone for the budget speech that will provide the finer details of government’s plans and how they will be financed.
The country was already battling low growth and a weak fiscal position when the pandemic hit and sent finances into a tailspin.
With its already strained finances, the pandemic forced the country to prioritise fighting the coronavirus and economic impact.
The gap between revenue and expenditure continues to widen resulting in the need to borrow. The cost of borrowing is also high as the sovereign has been downgraded to junk status by rating agencies.
Gross national debt was expected to reach 81.8% of GDP in this financial year.
The country needs to see substantial structural reforms to turn around the economy as well as the reduction in spending.
The financial performance of state-owned companies has placed considerable pressure on the public finances over the years.
This is likely to deteriorate as the lockdown restrictions will likely have worsened their financial position.
Government finances under the spotlight:
A lecture at the Wits School of Economics and Business Science, Lumkile Mondi, says the Reserve Bank should play a bigger role in helping to manage the country’s debt crisis.
“It requires an expansionary fiscal model where government leans on the central bank to assist it by borrowing more of government debt and therefore putting liquidity to enable the government to really invest hugely on failing infrastructure.”
Mondi says a tax increase may prompt more people to move their money off-shore due to the public’s lack of faith in the government, and its ability to manage public resources.
“Many of us believe that another tax increase to try and mobilise funding for comrades to share the spoils as they’ve done recently on the PPE procurement. So really the increased taxes will push those individuals who’ve still got a lot of savings in South Africa to move them off-shore.”
President Cyril Ramaphosa is expected to deliver the State of the Nation Address on Thursday evening from seven o’clock.
Last year the government insisted that public servants will face a salary freeze to help restore public finances:
Source: SABC News (sabcnews.com)