Debt service cost rises to close to R148bn

Cape Town – Finance Minister Pravin Gordhan on Wednesday announced that government would reduce South Africa’s expenditure ceiling by R10bn in the next financial year and by a further R16bn in 2018/19. 

In the medium-term budget policy statement (MTBPS) it was stated that total government spending over the next three years is expected to increase at 7.6%. Spending in most departmental segments will grow above inflation.

The fastest-growing item in the medium-term budget is debt-service costs, which will increase at 10.1%, although it will rise at a slower pace than during the previous three years. 

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Debt service cost is expected to increase from R147.7bn in 2016/17 to R197.2bn in 2019/20. 

At a media briefing ahead of the delivery of his medium-term budget speech on Wednesday, Gordhan repeatedly said there needs to be “trade-offs” in order to spend within government’s three-year cycle fiscal framework. 

“We must slow down spending in certain areas, but not jeopardise spending on key programmes. So, instead of building 10 of something we will only build eight of it. That will enable us to manage spending,” he said by way of example. 

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Another “trade-off” Gordhan mentioned, was public sector compensation. “Will we hire less people at higher salaries, or hire more people with lower salaries?” 

In last year’s medium-term budget, former Finance Minister Nhlanhla Nene, had to allocate the biggest part of South Africa’s contingency reserve to fund salary increases of public sector workers. 

This year, however, the contingency reserves have been reduced to accommodate the “carry-through” effect of increased university subsidies. 

Projected reserves of R10bn and R15bn in the next two years have been cut to R6bn and R10bn respectively. The 2019/20 contingency reserve stands at R20bn, according to the medium-term budget policy statement. 

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