Leap into debt: government increases borrowing by 50% per year

In the face of fiscal crisis, Finance Minister Tito Mboweni today proposed a leap into debt. He now proposes borrowing 50% more per year compared to his projections in the 2019 budget, and 80% more compared to the 2018 projections.

Mr Mboweni’s budget not only contains no expenditure cuts to total consolidated government expenditure, but even slight expenditure increases. The 2020 Budget is the second time Mr Mboweni significantly increases projected borrowing requirements by maintaining high expenditure levels despite sharply falling revenue.

The table and graph included below illustrates the trajectory of Mr Mboweni’s budgets since the last budget delivered by his predecessor, former Minister of Finance Malusi Gigaba, in February 2018.

The illustration compares the projections for fiscal year 2020/21. Note how projected deficits increase from R205 billion (3,5% of GDP) in Budget 2018, to R253 billion (4,3% of GDP) in Budget 2019, to R371 billion (6,8% of GDP) in the 2020 Budget.

Mr Mboweni, in effect, plans to borrow this year almost twice as much as Mr Gigaba proposed in 2018, and 50% more than what he himself estimated this time last year. Moreover, Mr Mboweni intends to maintain this deficit at around 6% of GDP for the next three years.

“In line with our work at Sakeliga, I reiterate the importance for businesses in South Africa to develop corporate strategies for resilience in a worsening fiscal situation,” says Piet le Roux, CEO of Sakeliga.

Mr Mboweni may nevertheless be commended for his restraint with regard to tax increases. Taxes are far too high already, but the only thing worse than Mr Mboweni’s projected 50% increase in the budget shortfall would have been an attempt to alleviate that shortfall with higher taxes. What should have been done – and this is the most basic indicator of reform – was cutting expenditure. Until that is seen, there is no reform.