Less spending not necessarily way to cut deficit, Ramaphosa says

South African President Cyril Ramaphosa said lower spending is “not necessarily” the answer to the country’s fiscal challenges, even as his government grapples with declining revenue.

The National Treasury is facing a massive shortfall and has already told the government to brace for a tough time when the finance minister delivers the medium-term budget policy statement in October.

“The revenue projections that we had have been lower than what we had anticipated. That immediately tells you that we are going to have headwinds,” Ramaphosa said in Johannesburg on Saturday.

“What 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,” he said.

After taking into account key investment areas, “you look at how you recalibrate the other spending, you re-prioritise,” he added.

South Africa’s budget balance swung to a deficit of R143.8 billion rin July, the largest since at least 2004 and more than the R115.5 billion forecast by economists. There was a surplus of R36.7 billion in June.

The head of Treasury’ budget office, Edgar Sishi, told a conference on Friday that the October policy statement won’t be “happy for the spenders.”

In 2020, the Treasury had forecast a primary surplus for three years as well as the stabilisation of debt as a percentage of gross domestic product in 2025. Sishi said that an increase in spending, particularly to mitigate the impact of Covid-19 and other domestic shocks, hadn’t resulted in much-needed growth.

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