- Minister of Finance Tito Mboweni told parliamentarians that South Africa would have a sovereign debt crisis by 2024.
- His remarks come ahead of his supplementary budget, due to be tabled next week.
- He said South Africa could no longer afford to spend the way it had been spending before.
Minister of Finance Tito Mboweni told the National Council of Provinces on Thursday afternoon that South Africa was staring a sovereign debt crisis “in the eyes” as soon as 2024 if the country’s spending and economic outlook did not change dramatically.
He was briefing a virtual meeting of the NCOP on the supplementary budget, which he is due to submit to Parliament next week Wednesday.
Mboweni’s warning of impending debt crisis comes on the back of credit rating agency Moody’s downgrading the country’s sovereign debt rating to junk, shortly after South Africa instituted a national lockdown aimed at curbing the spread of the coronavirus. The supplementary budget was first announced by Mboweni in May, two months into the lockdown, which was instituted when – in addition to the downgrade – the country had already fallen into a technical recession.
Saying the situation had “radically changed”, Mboweni told parliamentarians on Thursday that South Africa had to articulate its priorities and allocate funds according to revenue, adding that the country needed to stop borrowing to fill gaps and “live within our means”.
“If we don’t do this, by 2024, this country will be in a situation where the debt to GDP ratio will be higher than the GDP of the country. In simple technical economic terms, that means we are going to be in a sovereign debt crisis,” said Mboweni.
Mboweni said government would have to adjust expectations for the year as the country’s economic realities have shifted significantly since the February budget.
Run out of road
“We can no longer spend the way we were spending before. We can no longer do things which we had hoped to do before. The situation has radically changed, and we need to begin considering the zero-based budget system,” Mboweni said.
Efficient Group economist Francois Stofberg said South Africa should see the supplementary budget as an opportunity to change counterproductive spending habits, because “transformation often happens in times of distress and external shock”.
Business Leadership SA CEO Busisiwe Mavuso said the South African government would have to consider drawing external investment to stimulate the economy. In terms of government’s own spending patterns, she said SA “has run out of road to kick the can any further”.
When Mboweni tabled his budget in February, the dominant theme was his plan to set wheels in motion to reduce the state’s wage bill by R160.2 billion over three years, as he said the budget came in an environment of low economic growth, a rising budget deficit and record-high unemployment.