South Africa’s finance minister has slashed growth forecasts and warned of a higher fiscal deficit this year as he outlined a deteriorating set of public accounts that underlined the challenges facing new President Cyril Ramaphosa.
Delivering the government’s fiscal outlook on Wednesday, Tito Mboweni said Africa’s most industrialised economy, which fell into recession this year, would only grow by 0.7 per cent this year versus earlier Treasury predictions of more than double that.
The state budget deficit would increase to 4 per cent this year, compared with 3.6 per cent expected previously, while government debt levels would not stop rising until well into the next decade, he said.
“South Africa finds itself at a crossroads,” Mr Mboweni said as he warned of “difficult choices” ahead for the country’s finances due to a shortfall in tax revenues, rising public-sector wages and the high levels of indebtedness faced by many state-owned companies. “We cannot continue to borrow at this rate,” he said.
Mr Ramaphosa has pledged to revitalise South Africa’s moribund economy and overturn the corruption and decay of state institutions that marked the presidency of his predecessor Jacob Zuma. The ruling African National Congress forced Mr Zuma out of office last year.
But Mr Ramaphosa, a trade unionist-turned-tycoon, has faced resistance as he has set about removing Mr Zuma’s allies from institutions such as the revenue service and the boards of state-owned companies.
His job has been complicated by recent instability within the Treasury itself. Mr Mboweni, a former central bank governor, was this month appointed as South Africa’s fifth finance minister in three years after the scandal-clouded exit of Nhlanhla Nene.
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Mr Nene quit after failing to disclose links to the powerful Gupta family, the business dynasty accused of using Mr Zuma’s friendship to influence cabinet appointments and state contracts when he was president.
The Treasury is battling to keep the country’s last investment-grade credit rating, with Moody’s. Rivals Fitch and S&P cut their rating on South Africa’s debt to junk last year amid the turmoil of Mr Zuma’s presidency.
The rating agencies have in particular raised concerns about the finances of government-owned companies such as the power utility Eskom, whose debts have state guarantees. Many were at the centre of alleged graft tied to the Guptas, who deny wrongdoing, as does Mr Zuma.
Mr Mboweni said that “there must be no holy cows” in tackling losses at SAA, the state-owned airline but added that it would receive a further $350m bailout this year. He also said the government would work on a “long-term plan to restructure Eskom and deal with its debt obligations.”
Underlining the scale of the institutional decay facing Mr Ramaphosa, Mr Mboweni said that out of R50bn ($3.5bn) in spending that was being “reprioritised” to boost the economy, R16.5bn would go towards rebuilding the South African Revenue Service.
The Democratic Alliance, South Africa’s main opposition, said Mr Mboweni had presided over a “full-scale budget blowout” with the cost of servicing government debt now matching spending on basic education.
Wayne Duvenage, head of the Organisation for Undoing Tax Abuse, a South African anti-corruption group, said: “We are extremely pleased with plans to beef up the capacity of Sars and the promises of action against those who steal and waste funds . . . [but] we need less talk and more action in this regard.”
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