Poor administration and service delivery architecture are the achilles heel holding back economic progress in SA
The 2021 medium-term budget signalled a turning point in SA’s protracted low growth and tenuous fiscal environment, which is threatening the country’s development agenda. Much as the finance minister projects an optimistic fiscal future, South Africans — especially the poor and vulnerable — are reeling from socioeconomic deprivation caused by a mixture of poor service delivery, mismanagement of public finances and graft, an underperforming economy and the lingering effects of Covid-19.
This raises the question of what a balanced and sustainable fiscal outlook might mean for the most downtrodden members of the SA community; for young people who are languishing in joblessness; for rural women who must still carry buckets of water and bundles of firewood on their heads and still do unpaid care work; and for informal settlement residents facing all manner of health risks so they can live closer to work opportunities.
A positive growth or fiscal outlook is neither here nor there for people facing hunger, exclusion and disenfranchisement for days on end. Nor do they find appealing repeated rhetorical statements and talk of a tough stance towards state-owned enterprise (SOE) restructuring. The money siphoned off through corruption and crowded out by incessant SOE bailouts does not reach them either way, because services are not there in the first place.
This is not to say a sustainable fiscal environment or any of the interventions suggested by the finance minister to stabilise public finances are unimportant. But fiscal policy is not end in itself, it is a means of achieving a particular goal.
The recent economic green shoots exemplified by positive GDP growth in the first and second quarters of 2021 augur well as a foundation for a sustained economic recovery, a stable fiscal path and the delivery of basic services. However, threats to economic recovery continue to mount due to pre-existing structural bottlenecks that severely constrain growth.
Intermittent energy supplies, unresolved corruption, and poor policy-making and execution culminate in a loss of confidence and increased borrowing costs for the bonds we issue. SA must seek to avoid withdrawing fiscal support to vulnerable citizens too early and rather ensure the debt burden is sustainable by eliminating leakages.
Incessant, unresolved corruption and widespread fiscal leakages have made taxpayers and businesses despondent and have eroded tax morality. The revenue windfall should not be fully committed to further expanding expenditure. Instead, it should be used to defray as much as possible the structural budget deficit and offload the growing debt service costs with redemption requirements.
The national debt and SOEs remain glaring constraints to growth and a risk to fiscal sustainability. Debt service cost is the fastest-growing expenditure line item with a 10% annual average growth rate over the 2022 medium-term budgetary framework. It accounts for 12% of total consolidated spending in 2021, rising to 16% in 2024/2025. The detrimental effect of debt service costs crowding out social programmes could lead to the total collapse of basic and social services as funds intended for core spending are diverted to servicing debt.
We acknowledge the difficulties in moderating debt growth within a subdued economic environment, and recommend improvements in cost-efficiencies of spending and closing the fiscal leakages to offset the growing deficit and debt. Expenditure management is beset by weak linkages between policymaking, planning, budgeting and execution. Financial misalignments of crucial programmes, a poor control environment and the misallocation of resources are illustrated by unexplained cuts to conditional grants and the funding of unviable SOEs over the past decade.
The Financial & Fiscal Commission, which I lead, is tasked with finding solutions to these pertinent issues. It is a difficult balancing act, but frankly balance cannot be attained on the back of the poor. Useful as the medium-term budget policy statement is for budget predictability and sending positive market signals, it is important to note that budgets are not self-executing. Those implementing the budget shoulder great responsibility to ensure that better-quality services find expression not only in allocations but also in delivery architecture.
It is no use making budget allocations to municipalities that are dysfunctional, to provinces that cannot purchase medical equipment, and to national departments that cannot disburse relief funds earmarked for small businesses. This is a daunting problem that cannot be resolved by the budgeting process, no matter how rapid economic growth and the revenue bonanza can be.
Poor administration and service delivery architecture — in processes and systems — are the achilles heel holding back economic progress in SA. Until such time as state capacity at all levels of government is improved and harmonised, SA will continue to have unrealistic expectations for the medium-term budget.