Treasury on why stabilising public finances is key for growth

Connie Queline

Treasury on why stabilising public finances is key for growth

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JIMMY MOYAHA: When a budget speech is delivered it’s not often that you get reflections from within the National Treasury, which puts together the budget. We are fortunate enough to have one such reflection on the line now [given] by the leader of the National Treasury team – as quoted by the minister – who is the director-general at National Treasury, Dr Duncan Pieterse, to reflect on the budget and some of the pronouncements that were made there.

Dr Pieterse, thanks so much for your time. I suppose the starting point for our conversation is to reflect on some of the numbers mentioned by the minister. There were obviously a lot of different considerations that went into arriving at the budget and the allocations – and everything around that. What wasn’t mentioned in any grave detail was a plan around public finance, and I guess let’s start there. We’ve heard time and time again that we need to be managing the fiscus responsibly. We need to be allocating expenditure responsibly, and those sorts of things.

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We know that the public sector wage bill is such a challenge that we’ve all had to endure – especially you and your team – with it sitting at over R780 billion. It’s quite a significant portion. But we didn’t get any sense of a plan around anchoring public finance from the minister. Can you shed some light around that and perhaps what has been outlined or what has been planned from a Treasury perspective?

DUNCAN PIETERSE: Yes. Thank you for the question. The way we think about how to anchor the public finances and how to create a sustainable path for the fiscal framework is through the main fiscal metrics that we use over time to understand whether the sustainability of the fiscal framework is improving [or] deteriorating. There are a couple of key metrics that I think one has to keep in mind in this regard.

The first metric is that you cannot stabilise debt-to-GDP unless you have a primary balance that contributes towards a stabilisation in debt-to-GDP over time. So what does that mean?

That means that the difference between revenue and non-interest expenditure needs to be positive revenue, needs to be greater than non-interest expenditure. And that is the case this year for the first time in over 10 years, where we have a primary budget surplus in 2023/24.

Now, that primary budget surplus will grow over the next few years and because it is growing, it allows us to stabilise debt-to-GDP and for it to peak in ’25/26 at 75.3%.

So when we think about the sustainability and the anchoring of public finances, that is really how we think about it – a growing primary surplus that allows us to stabilise the debt-to-GDP ratio so that it peaks, and then it starts coming down. In addition to that, we also have a gross borrowing requirement that is also declining, and I think that gives us an opportunity to bring down debt-service costs, which are decreasing by about R30 billion over the MTF [medium-term framework], also contributing to a more sustainable fiscal picture.

JIMMY MOYAHA: Dr Pieterse, I had a conversation with the commissioner at Sars, Edward Kieswetter, around the state of the economy, particularly where it relates to growth. I suppose this comes in with what you’ve just mentioned around the overall surplus continuing to look better and better over time. Add to that, we had growth forecasts that were mentioned in the budget speech of around 1.6% averaging over the next three years. Now we haven’t really got an indication of how we intend to get to that number, given that in the past year, real GDP was forecast to have been 0.6%.

And obviously the question that then [arises] is: the plan for growth that’s been outlined or the expectations that have been modelled out, how realistic are those expectations if we haven’t got a plan for growth and for economic stimulus? We didn’t hear a plan in this speech. We didn’t hear a plan in the State of the Nation Address.

Yes, part of Treasury’s responsibility is the disbursement of funds, not necessarily the drafting of these plans, but I’d imagine that any department or any organisation that would want to stimulate growth, that would ask for a budget from you as National Treasury, would’ve presented a plan to you. Those plans weren’t shared.

DUNCAN PIETERSE: Look, I don’t think one should underestimate the importance of a sustainable fiscal path in supporting economic growth. If your finances are not sustainable, that is reflected in your risk premium and, therefore, in your cost of borrowing, and therefore in the ability of the economy to access capital at a cost that allows the economy to grow.

So our starting point always to get a growing economy is a sustainable fiscal path, which we believe is what we have put forward today. However, when you operate in an economy like ours where there are several binding constraints to growth – most notably in energy and logistics – a sustainable fiscal path is not enough to catalyse development, which is why there are additional areas that we focus on in this budget.

The one is that we make sure that there is an-above inflation increase in our capital budgets over time. So our capital budgets are growing at 7.3% over time.

Secondly, we are introducing various infrastructure-related reforms to improve the delivery of infrastructure, as well as the financing thereof, including through – among other things – our reforms to the public-private partnership framework, the PPP framework, that will allow us to create a more robust pipeline of infrastructure projects.

And then in addition to that, there are the various structural reforms that the government continues to focus on in order to get us to a higher growth path because, as I said before, a sustainable fiscal path is not enough to support higher growth. Those [reforms] are discussed in detail in the budget documentation and were referenced in the minister’s speech. They include the reforms in the freight logistics space, in ports, in the energy sector on the generation side – where the private sector is being brought in to assist with the energy deficit – and so on.


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So it’s the combination of these things, infrastructure reform, a focus on structural reforms that are going to deal with the binding constraints, and a sustainable fiscal path so that your growth is not undermined by any fiscal risks over time.

JIMMY MOYAHA: Dr Pieterse, I want to draw your attention to two pronouncements within the speech, the first being the R2.9 billion that the government is using from the Criminal Asset Recovery Account [Cara] to combat illegal mining and other priority crimes. As for that R2.9 billion that’s being drawn down from that account we have very little information about this account, about what is in the account. Can you shed some light about how much sits in the account, who administers the account, and whose responsibility it is to have oversight over such an account?

DUNCAN PIETERSE: Look, the Criminal Asset Recovery Account is a unique arrangement. Effectively what this arrangement is, is that proceeds from the recovery of funds that were illicitly obtained through criminal activity get deposited into a special account. This account is the account that houses these receipts, and there is a process by which the amounts that have ended up in this account are then distributed.

In most cases, the amounts that are distributed from the account go to the criminal justice cluster, more broadly to deal with the issues that have contributed to the criminal activity, the recovered proceeds of which then end up in the account.

So in this instance, the biggest amount out of this account that was made available, R1.7 billion, was made available to the South African Police Service for the deployment of police – including the procurement of vehicles, helicopters, and other issues to deal mainly with illicit mining, but also with other priorities. This I think the minister mentioned in his speech.

But there are also other parts of government that have benefited from proceeds from Cara, including the South African Defence Force, the Department of Home Affairs, the Border Management Agency and so on. But the bulk of those funds went to the South African Police Service.

JIMMY MOYAHA: Dr Pieterse, can you share how much sits in the account following the R2.9 billion that is set to be removed from the account?

DUNCAN PIETERSE: Look, I won’t be able to give you the balance of this account, mainly because as and when proceeds are recovered, they are paid into this account. So the balance in this account actually changes very often. What happens, though, is that every year there is a process by which bids are made for departments, in particular those in the security cluster, to bid for amounts in this account. There’s a committee that sits that then makes a decision about how these amounts are allocated.

But it’s very difficult for me to give you the actual amount, given that it’s subject to change, depending on whenever there are criminal proceeds that are paid over into this account.

JIMMY MOYAHA: Fair enough. Dr Pieterse, as we conclude, R628 million has been allocated towards the efforts of implementing what the Financial Action Task Force [FATF] has set out for us to do. Is that enough, because this is not a small problem to be taken likely, and we do need to get off that grey list. Do you feel that R628 million is enough of an allocation?

DUNCAN PIETERSE: Look, the R628 million should not be seen in isolation of the additional amounts we have made available for the criminal justice sector. So yes, there are amounts that are specifically related to FATF and those amounts have been allocated to the Department of Justice and Constitutional Development for the implementation of those recommendations.

But of course you can imagine that the total amount that we allocate to the peace and security cluster of R765 billion over the MTF, the additional amounts that we’ve made available for police – including to service the wage agreement but also to train new police recruits – all of those amounts would support our efforts against greylisting. And of course, as you can appreciate, this is also not only about the amounts that are allocated in the fiscal framework, but it’s also about the functioning of the security cluster as a whole, and its ability to use those resources effectively in order to give effect to the various FATF requirements, in order for us to overcome greylisting.

JIMMY MOYAHA: We hope to overcome it, and we thank you for your time, Dr Duncan Pieterse, Director-General at National Treasury, joining me to reflect on this afternoon’s budget speech.


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