South Africa finds itself on an unsustainable fiscal trajectory as government spending shows no signs of abating. Despite a gloomy financial outlook, the country’s leaders have forged ahead, prompting concerns about the long-term consequences for the nation’s economic stability.

Finance minister Enoch Godongwana’s 2023 Medium Term Budget Policy Statement (MTBPS) revealed alarming statistics, indicating that government spending has consistently surpassed revenue since the 2008 global financial crisis. To sustain this pattern, the government is set to borrow an average of R553 billion annually over the medium term, leading to a projected gross debt of over R6 trillion by 2025/26.

Godongwana stated that the gross government debt is expected to reach 77% of the gross domestic product (GDP) by 2025/26, with debt-service costs escalating from 20.7% in 2023/24 to 22.1% in 2026/27. The interest on this burgeoning debt alone is estimated to be around R385.9 billion for the next fiscal year.

In a striking revelation, it was disclosed that over the Medium-Term Expenditure Framework, interest costs will amount to a staggering R1.3 trillion, surpassing allocations for crucial sectors such as police, education, or health.

Despite a year marked by increased government spending, revenue collection is expected to fall short of the estimates outlined in the 2023 budget. A projected deficit of R56.8 billion for the current fiscal year raises concerns about the sustainability of the current fiscal policies.

The decline in tax revenue collection in 2023 is attributed to several factors, including a sharp drop in corporate tax from the mining sector, challenges in the public sector payroll, Eskom’s debt burden, the Transnet crisis, and significant outlays for social welfare grants.

The mining sector, which had been a source of increased revenue in previous years due to high commodity prices, faced a downturn with the end of the commodity price cycle. Additionally, the inefficiency of Transnet’s freight rail system affected the profitability of mining companies.

State-owned enterprises (SOEs) have also played a role in the fiscal predicament, costing the government R398 billion in bailouts since 2013/2014. Eskom, receiving 55% of this amount, continues to pose a significant financial burden. Other SOEs, including Transnet and the struggling Post Office, have sought financial assistance, further straining the government’s resources.

Overspending by government departments is another alarming trend, with more than R18.5 billion accumulated over the years. The Department of Social Development topped the list with an overspend of R15.1 billion, attributed to the response to the Covid-19 pandemic.

Independent economic analyst Professor Bonke Dumisa expressed deep concern, highlighting that the government spends over R366 billion annually on servicing the cost of government debt. The adjustments proposed by Godongwana in the MTBPS, including a revision down of R21 billion in government spending, may not be sufficient to address the escalating fiscal challenges.

As South Africa grapples with these economic headwinds, questions loom over the sustainability of its fiscal policies, especially with ambitious plans such as the implementation of the National Health Insurance (NHI) on the horizon. The nation watches closely as leaders navigate the delicate balance between addressing immediate needs and ensuring a financially stable future.