{"id":1356,"date":"2023-09-05T11:04:50","date_gmt":"2023-09-05T11:04:50","guid":{"rendered":"https:\/\/www.innov8fs.co.za\/blog\/?p=1356"},"modified":"2026-03-18T11:46:25","modified_gmt":"2026-03-18T11:46:25","slug":"south-africa-has-run-out-of-money","status":"publish","type":"post","link":"https:\/\/www.innov8fs.co.za\/blog\/2023\/09\/05\/south-africa-has-run-out-of-money\/","title":{"rendered":"South Africa has run out of money"},"content":{"rendered":"

\"\"<\/p>\n

The National Treasury has proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap.<\/p>\n

The Sunday Times reported\u00a0that the National Treasury prepared radical measures after a cabinet meeting in August at which ministers were warned of dwindling tax revenue.<\/p>\n

The measures include a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.<\/p>\n

\u201cThe spending cuts have been widely welcomed and indicated that the government had \u2018run out of money\u2019 and faced a \u2018debt trap\u2019 as growth had stalled,\u201d The Sunday Times said.<\/p>\n

The National Treasury\u2019s performance is unsurprising, considering the latest data about the state\u2019s financial health.<\/p>\n

Last week, the National Treasury revealed that the budget moved to a deficit of R143.8 billion for July.<\/p>\n

It is the largest deficit since 2004 and wider than the R115.5 billion forecast by economists. There was a surplus of R36.7 billion in June.<\/p>\n

Bloomberg reported that national debt has risen to R4.7 trillion and could reach R6 trillion in 2025, compared with R500 billion in 2006.<\/p>\n

The situation has reached such concerning levels that South African Reserve Bank Governor Lesetja Kganyago said it was essential that the country reduced fiscal risks.<\/p>\n

In June, the central bank expressed concern about a growing reluctance from local investors to continue absorbing government issuance.<\/p>\n

Based on data compiled by Bloomberg, demand at a recent government bond auction was the lowest in nearly two years. Bidding was weakest for the longest-dated 2048 notes.<\/p>\n

South Africa\u2019s current debt-to-gross domestic product (GDP) ratio is 73%. The situation is set to become much worse as the country\u2019s fiscal deficit this year will be around 6% of GDP.<\/p>\n

\"\"<\/p>\n

The state continues to spend far more than it gets in, which means it has a growing fiscal deficit and needs to borrow money to make ends meet.<\/p>\n

Despite the government\u2019s growing expenses and the Treasury\u2019s warning,\u00a0President Cyril Ramaphosa said\u00a0lower spending is \u201cnot necessarily\u201d the answer to the country\u2019s fiscal challenges.<\/p>\n

\u201cThe revenue projections that we had have been lower than what we had anticipated. That immediately tells you that we are going to have headwinds,\u201d Ramaphosa said.<\/p>\n

\u201cWhat should we do? The discussion is ongoing. It is not necessarily cutting spending. It is seeing how best you focus on your key delivery areas.\u201d<\/p>\n

\u201cAfter considering key investment areas, you look at how you recalibrate the other spending, you re-prioritise.\u201d<\/p>\n

\"\"<\/p>\n

Renowned economist Dawie Roodt previously warned that South Africa is running out of money, but the spending cuts were not palatable in an election year.<\/p>\n

\u201cThe state\u2019s expenses are going to be much larger than expected, and economic growth much smaller,\u201d he said.<\/p>\n

Roodt said South Africa\u2019s fiscal deficit would be much larger this year than what Finance Minister Enoch Godongwana budgeted for.<\/p>\n

\u201cThe minister said they want to stabilise South Africa\u2019s debt level at 70% of GDP, but it has already increased to 72%,\u201d he said.<\/p>\n

\u201cSouth Africa\u2019s fiscal deficit for 2023 is set to be between 6% and 6.5% of gross domestic product (GDP), much higher than the minister\u2019s expected 4%,\u201d Roodt said.<\/p>\n

\u201cI expect South Africa\u2019s debt to increase to 75% of GDP by the end of the year and reach 80% of GDP by the end of 2024.\u201d<\/p>\n

The only way to reduce the country\u2019s debt is to increase income through economic growth or cut spending.<\/p>\n

The economy is under pressure because of the government\u2019s business-unfriendly policies, which leaves spending cuts as the only option.<\/p>\n

However, announcing cuts to public sector employees, salary freezes, or reducing social grants will be unpopular.<\/p>\n

It can be fatal ahead of an election year when the ruling ANC is fighting to maintain its majority in Parliament.<\/p>\n

Therefore, Ramaphosa\u2019s comments on spending make sense in terms of party politics, but not as the country\u2019s leader.<\/p>\n

Without spending cuts or rapid economic growth, South Africa\u2019s debt will continue to grow, and it will continue to spend more on servicing interest on this debt.<\/p>\n

It can lead to a debt spiral, ultimately resulting in high inflation levels, further stifling economic growth.<\/p>\n

The outcome of this situation can be devastating for a country, which is why many experts are urging the country to cut spending as a matter of urgency.<\/p>\n","protected":false},"excerpt":{"rendered":"

The National Treasury has proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap. The…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1356","post","type-post","status-publish","format-standard","hentry","category-innov8ions"],"_links":{"self":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1356","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/comments?post=1356"}],"version-history":[{"count":1,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1356\/revisions"}],"predecessor-version":[{"id":1360,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/posts\/1356\/revisions\/1360"}],"wp:attachment":[{"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/media?parent=1356"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/categories?post=1356"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.innov8fs.co.za\/blog\/wp-json\/wp\/v2\/tags?post=1356"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}