S.Africa to cut spending as debt rockets, growth slows

South Africa’s finance minister on Wednesday warned the country was faced with unprecedented levels of debt as state-owned companies continue to require massive bailouts.

Africa’s most developed economy is struggling with stagnant growth, record unemployment, widespread poverty and inequality.

“Our problem is that we spend more than we earn,” Mboweni told parliament, standing with an iconic aloe pot plant he carries around as a symbol of South Africa’s economy needing to be nurtured carefully.

“On our current trajectory, by the end of the three-year framework, debt service costs will be bigger than spending on health and economic development,” he added.

Mboweni bemoaned the ballooning national debt, saying it exceeded 3.0 trillion rand ($200 billion) this year and was expected to rise to 4.5 trillion rand ($300 billion) over the next three years.

The current debt-to-GDP ratio stands at 60.8 percent and is estimated to reach 71.3 percent in 2022-23.

Mboweni said such levels were “unsustainable” and that the government would have to cut spending by 150 billion rand ($10 billion) over the next three years as part of efforts to control the deficit.

The government has spent 6.3 trillion rand so far this year, of which 3.0 trillion rand have been allocated to education, social development and health.

Mboweni added that the economy was now only expected to grow by 0.5 percent this year, down from the 1.5 percent forecast in February.

Despite the downturn, Mboweni announced that 26 billion rand would still be allocated to Eskom — South Africa’s struggling state-owned energy company — which has already received several government bailouts.

Eskom, which generates around 95 percent of South Africa’s electricity, has accumulated the equivalent of $30 billion in debt.

“We cannot continue to throw money at Eskom,” he said. “Eskom is a business and should be run that way.”

Credit ratings agencies have warned that Eskom’s debt alone could cause downgrades and embarrass President Cyril Ramaphosa, who was re-elected this year in part on a pledge to restore the economy.

Smaller state-owned companies, including South Africa’s public broadcaster and its national airline, will receive 11 billion rand.

Mboweni warned that going forward, all money awarded to state-owned companies would come in the form of loans rather than grants.