MINISTER of Finance, Thabo Sofonea has revealed that the Government is faced with a dilemma of balancing the need for support to the economy post the COVID-19 pandemic with ongoing efforts to maintain the fiscal deficit at sustainable levels.

He made the announcement on Wednesday when announcing the midterm budget review for the financial year 2021/22.

“With an estimated general government spending of 65.0 percent of GDP and total revenue of 47.2 percent of GDP, it is evident that most of the adjustment ought to be made from the recurrent expenditure side,” Mr Sofonea said.

High unstable SACU revenues and high expenditures make fiscal discipline hard to maintain. This condition calls for improvements in the expenditure controls and revenue management. A better and improved revenue management is key to reducing the country’s dependence on volatile SACU revenues.

While compensation of employees is lower at 41.8 percent against the budget, it is however, higher for the first half of this year by M36.3 million relative to prior half year outturn in 2020/21.

On average, Mr Sofonea said, the Government spends approximately M450.9million a month on compensation of employees.

Expenditures for the acquisition of goods and services in comparison with last year’s six months’ outturn increased by M112.5 million to M961.6 million, driven by an increase in operating costs.

Student grants to the National Manpower Development Secretariat (NMDS) rose by M92.4 million to 544.6 million compared with the same period of 2020/21.

 “For the remainder of the fiscal year 2021/22, sustained expenditure restraint is required for fiscal sustainability. The hard work to narrow the budget deficit and improve the structure of spending remains on course,” he said.

Furthermore, total revenue including grants and SACU is estimated at M17.3 billion which is 4.4 percent lower than the previous year’s estimates. The lower total revenue estimates is associated with a lesser share of SACU revenue of M6.0 billion against M8.9 billion in 2020/21.

To ensure appropriate and transparent application of the required fiscal consolidation, the Government has sought International Monetary Fund (IMF) support under Extended Credit Facility (ECF) and Extended Finacing Facility (EFF) arrangements which are consistent with the objectives of the National Strategic Development Plan II (NSDP II).

“The Government commits to address the long standing structural problem of a government-led growth model, while focusing on targeted reform action to maintain macroeconomic stability and strengthening the inclusive growth agenda,” Mr Sofonea noted.