2022 BUDGET ANALYSIS
IT’S A GDP GROWTH PROBLEM, NOT A DEBT PROBLEM The only way out of our economic crisis is for the government to start investing in its people and infrastructure again, writes Duma Gqubule
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fter more than a decade of no gross domestic product (GDP) growth and soaring unemployment – the number of unemployed people increased by 6.5 million to 12.5 million people between December 2008 and September 2021. Finance Minister Enoch Godongwana’s maiden budget has condemned South Africans to three more years of the government’s failed economic policies. Delivered within the context of an unemployment rate of 46.6 per cent, the budget forecast a GDP growth rate of only 1.8 per cent a year for the next three years. By comparison, 153 emerging and developing economies will grow by 4.8 per cent and 4.7 per cent over the next two years, according to the International Monetary Fund’s (IMF) World Economic Outlook publication. This means that the government does not believe that its own economic recovery plan and structural reforms will deliver a faster rate of GDP growth. The World Bank and the IMF agree. They have forecast GDP growth of only 1.5 per cent a year between 2022 and 2026. In another article in this publication, Asghar Adelzadeh and Pali Lehohla have forecast GDP growth of 1.8 per cent a year until 2030 based on the government’s current economic policies. On this dangerous trajectory, assuming that the growth of the labour force and the relationship between GDP growth and job creation will be almost the same as they were before the pandemic, there will be 17 million
unemployed people by 2030. The unemployment rate will be 50.9 per cent. Due to high commodity prices, there was a bumper R469.9-billion increase in estimated main budget revenues for the 2021 three-year medium term expenditure framework (MTEF) until 2023/2024 compared with the forecasts that were made in last year’s budget. For the 2021/2022 fiscal year, the main budget revenue overrun was R197.4-billion. Noninterest expenditure was R63.1-billion higher than what was budgeted for in 2021, due to the reintroduction of the R350 a month social relief of distress grant after the July 2021 riots and the need to fund an increase in wages for public sector workers. The difference between the budget overrun and the increase in spending of R134.3-billion was used to repay debt. This means that only 32 per cent of the revenue 2021/2022 overrun was invested in the economy. If National Treasury understood the scale of the economic crisis, it would have decided to prioritise the interests of the people of South Africa, rather than those of the financiers. As expected, the 2022 budget extended the R350 a month social relief of distress grant for one year at a cost of R44-billion and allocated R18.4-billion towards the presidential employment stimulus for two years. There was no news about civil society calls for the government to introduce a Basic Income Grant, which would have been affordable, given the large tax windfall and the fact that many economists believe that the increase in
world commodity prices is set to continue over the next few years. Over the next three years, main budget revenues will increase by 4.6 per cent a year to nearly R1.8-trillion in 2024/2025. But noninterest spending will increase by only 2.1 per cent a year to R1.7-billion. The difference will be used to achieve a primary surplus. After inflation, there will be a real decline in noninterest spending of 6.6 per cent a year over the next three years. The quality of poor public services will continue to decline. Real health and education spending will decline by 11.8 per cent and 7.1 per cent a year respectively. Treasury’s Budget Review publication said the budget cuts would result in fewer teachers and larger class sizes in some provinces. In health, compensation budgets would grow by only 1.1 per cent, which would limit the ability of provincial health departments to employ more frontline staff. Over the past few years, the government has been talking about an infrastructure-led recovery. But a R100-billion infrastructure fund it established in 2019 has no money because National Treasury has cancelled previous allocations made to it. South Africa’s debt is not high by international standards, even when it is benchmarked against similar upper middle-income countries. The only way out of the crisis is for the government to start investing in its people and infrastructure again. South Africa has a GDP growth problem, not a debt problem. If the economy grows again, the debt ratio will decline.
ISSUE 56 | MARCH 2022 AFRICAN LEADER
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