Debt stabilisation key to a sound supplementary budget, DA says
If debt is not constrained in the long term, debt service costs will crowd out the provision of basic services, the party has warned
It is critical that finance minister Tito Mboweni’s supplementary budget on Wednesday outline a credible debt stabilisation path over the medium-term to reduce the risk premium on government debt, DA finance spokesperson Geordin Hill-Lewis said on Monday.
While accepting that debt would rise in the short term to cater for the cost of the Covid-19 pandemic and the R285bn estimated fall in revenue in 2020, the Treasury had to demonstrate a commitment to reducing debt over the medium-term to reduce interest costs, Hill-Lewis said at a media briefing on the DA’s proposals for the supplementary budget, which Mboweni will table in parliament on Wednesday.
Hill-Lewis was flanked by DA leader John Steenhuisen, DA MP Dion George and the party's head of policy, Gwen Ngwenya.
The comments come in the wake of Mboweni’s warning that SA faces a sovereign debt crisis in the next three to four years if the budget is not changed fundamentally and structural economic reforms introduced.
Forecasts for the decline in economic growth for 2020 range from 6%-16% and the Treasury has warned that between three-million and seven-million people could lose their jobs.
Hill-Lewis said that according to the Treasury’s own projections, debt will reach 113.8% of GDP by 2028 and still be growing. Debt service costs are already the fastest-growing item on the budget. In the 2020 main budget, before lockdown, interest charges were projected at R229bn — more than what is spent on healthcare, social grants or policing.
Hill-Lewis believed there was very little the government could do to offer stimulus in the coming months because the state’s fiscal position was so weak. The DA does not propose deep cuts to departmental budgets, though it supports the R160bn cuts over three years in the public sector wage bill.
Hill-Lewis said what was needed was a “resilience budget” which acknowledged “that neither austerity (sharp cuts to basic services) nor a big expansion in spending is possible now”.
“The only available option is a very careful deployment of debt to fund the crisis response, while ensuring economic reform can spur growth, and showing a clear path to debt stability.”
This type of budget would help families through the worst of the present crisis, and then provide a clear plan to restore the economy to growth and ultimately stave off a full-blown sovereign debt crisis. The question to be asked of the supplementary budget Hill Lewis said was, “does it make SA more resilient for what is coming, or does it only exacerbate our vulnerability?”
Together with a debt stabilisation plan, structural economic reforms were essential.
Among the economic reforms proposed by the DA are selling or shutting down state-owned enterprises that cannot remain viable without state bailouts; ending Eskom’s monopoly and opening the electricity market to competition; and rejecting “investment-killing” policies of expropriation without compensation, national health insurance, prescribed assets, BEE and Reserve Bank nationalisation.
The DA says there should be no further bailouts for SAA.
“It is possible that these reforms further help to reduce the cost of debt by reducing the risk lenders face in borrowing to SA. We must focus on reducing debt costs, which are affected by the debt trajectory, and by perceived levels of risk,” Hill-Lewis said.
“If we fail to implement a home-grown reform package, we will have one imposed upon us by international lenders like the IMF,” Hill-Lewis said.
To achieve debt stability over time spending needed to be restructured and spending on unnecessary and nonessential items reduced to protect spending on essential basic services, and on growth-spurring infrastructure investment.