GOVT EXPENDITURE RATIO 2ND LOWEST

MBABANE - Recurrent expenditure as a proportion of capital expenditure is still too high and unsustainable.

This was a complaint registered by Business Eswatini CEO Nathi Dlamini in his presentation during the Post-Budget webinar organised by Central Bank of Eswatini (CBE) in collaboration with the Economics Association of Eswatini last Thursday.  In the upcoming financial year 2021/22 government will spend around 30 per cent of the total budget in paying salaries for over 45 000 employees. Consumption of goods and services in all ministries will cost government a total of E2.9 billion, which is around 12 per cent of total expenditure.

proposed

The proposed capital budget for the financial year 2021/22 is E6.4 billion which is 27 per cent of total expenditure. The recurrent expenditure is worrying Dlamini, saying at some point, hard decisions will have to be made. Or alternatively, we have to achieve GDP growth figures well above six per cent a year –an impossible feat indeed,” said Dlamini. Analysts say increased government spending may create a multiplier effect. If government spending causes the unemployed to gain jobs, then they will have more income to spend leading to a further increase in aggregate demand.

If spending is focused on improving infrastructure, this could lead to increased productivity and a growth in the long-run aggregate supply.  Higher spending on roads and railways can help remove supply bottlenecks and enable greater efficiency. This can also boost long-term economic growth. As the expenses debate rages, this publication has made comparisons of the ratio of government expenditure to gross domestic product (GDP) among SACU countries. SACU is the Southern African Customs Union among five countries of Southern Africa. These are Botswana, Eswatini, Lesotho, Namibia and South Africa.  Eswatini’s 2019 and 2020 numbers of 33.78 and 35.91 per cent, respectively, are the second lowest behind Botswana. Lesotho has the highest ratio at over 50 per cent.

comparisons

The comparisons are based on Statista is a German company specialising in market and consumer data.  The year 2020 figures are mainly based on projections, as the financial year will only end next Wednesday. Dlamini stressed on the need for fiscal consolidation and holding expenditure steady. “That being said, we are pleased that the minister has highlighted the importance and indeed, the urgency of fiscal prudence on the part of government. His Majesty also alluded to this and we would like to echo his sentiments in this regard. We believe that this is the right prescription that will see us through the road to economic recovery and success. “The minister (Neal Rijkenberg) has talked about doing more with less. We like that as a private sector because it speaks to fiscal prudence even though the budget doesn’t seem to go deep enough in this regard,” said Dlamini.

Meanwhile, Finance Minister Neal Rijkenberg said the global economic crisis caused by the coronavirus amplified the need to bring government’s fiscal accounts onto a sustainable path.
“Aligned to the Fiscal Adjustment Plan (FAP) approved in July 2020, the budget for financial year 2021/22 has been developed with a focus on fiscal consolidation,” said the minister.
In order to bring government operations to sustainable levels the Fiscal Adjustment Plan lays out a set of fiscal policy measures aimed at an overall consolidation of 6.5 per cent of GDP over a three-year period.

consolidation

The consolidation process contains structural reforms to several expenditure items, among others, the government’s wage bill. The wage bill is by far the largest single expenditure item and has been growing rapidly over the past years, threatening fiscal sustainability. “The reduction in wage related expenditure will be realised through a continuation of the hiring freeze to all government entities effective from 2018/19, alterations to allowances, reallocation of excess positions between ministries, alternative service delivery for support services and possibly an Early Voluntarily Retirement Scheme (EVERS). “The consolidation plan further includes alterations to the purchase of goods and services, the internal transfers as well as the capital budge,” said the minister.

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