11 February 2009
Government spending of R787-billion on public infrastructure over the next three years will push South Africa’s budget deficit to 3.8 percent in 2009, Finance Minister Trevor Manuel announced on Wednesday.
Delivering his 2009/10 Budget speech in Parliament in Cape Town, Manuel said that decreased demand for South African commodities and lower outputs, coupled with decreased domestic growth, meant the government had to borrow more funds in order to finance planned public infrastructure projects.
“Although the budget deficit will rise to 3.8 percent of gross domestic product [GDP] next year, debt service costs will remain moderate over the next three years, at about 2.5 percent of GDP,” Manuel said.
“This is possible because we had the courage to make the right choices over the past decade.”
Unpopular choices pay off
The government’s prudent spending policy in the past meant it could now spend on things such as transport, health and education where other governments were not able to.
In 1996, South Africa’s public debt was 48 percent of GDP and rising, and the National Treasury came up with a macroeconomic strategy which confronted the problem boldly and decisively.
“Reducing the budget deficit was neither easy nor popular . but it was the right thing to do, and the outcome is that year by year the burden of debt service costs has declined and resources have been released to spend on education, health care, housing and infrastructure.
“This also means that today we are able to respond to the economic downturn boldly and decisively.”
The funds South Africa is borrowing are not being used to fund failed banks, as is taking place in the United States and Europe, but to construct roads and power stations, classrooms and wards, modernise technology and transform public service delivery, Manuel noted.
Road, railways, classrooms, clinics …
The 2009 Budget makes a further R6.4-billion available for public transport, roads and rail networks; R4.1-billion for school buildings, clinics and other provincial infrastructure projects; and R5.3-billion for municipal infrastructure and bulk water systems.
Housing and the eradication of informal settlements remain at the forefront of the government’s infrastructure investment plans, he said, adding these issues significantly affected both employment and poverty reduction.
“In the past three years, the municipal infrastructure grant programme has spent about R32-billion. Over the next three years, infrastructure grants to municipalities total R67-billion, and a further R45-billion will be spent on the Breaking New Ground housing programme.
“Together with investment in roads and public transport, these constitute one of the largest areas of expansion of public sector spending, and are rightly prioritised as part of our response to the current deterioration in employment and economic activity.”
Of the budgeted R787-billion for the next three years, R390-billion will be spent by state-owned enterprises, Manuel said.
The government will also allocate R25-billion over the next three years to the Rail Commuter Corporation to invest in new trains and introduce new train routes. The budget for rail safety inspectors to reduce accidents and delays is also being increased.
The R25-billion Gautrain project, which recently enjoyed a successful maiden test run with journalists aboard, is nearing completion, with the link between Sandton and the OR Tambo International Airport to be completed by early 2010.
The Bus Rapid Transit system will receive R12-billion over the next three years.
“We are also budgeting R1.6-billion for South African Airways to support its turnaround strategy, which includes reducing costs and improving efficiency,” Manuel said, adding: “I am sure that the House will agree with my hopes that this will not be a recurring allocation.”
The state airline has been fraught with financial difficulties in the past, with the government having to come to its aid on numerous occasions.