Bhisho dips into reserves — again

With finance MEC Mlungisi Mvoko revealing that the province is dipping into its reserves again, withdrawing R800m to offset a budget deficit, concerns have emerged regarding a potential cash shortage in the Eastern Cape.

Since 2013, the Eastern Cape government has dipped into the reserves, drawing R14bn from the provincial coffers.

At a media “lock-up” ahead of Mvoko’s 2024/2025 budget speech on Tuesday, provincial treasury boss Daluhlanga Majeke refrained from disclosing specific figures regarding the remaining funds.

But he said the reserve was sufficient to cover expenses for one financial year to the next.

Mvoko presented the Eastern Cape’s R95.4bn budget at the Bhisho legislature, saying the province had received R92.8bn from the national government.

This includes R78bn from the provincial equitable share and conditional grants worth R14.7bn.

However, the allocation left a R2.5bn deficit, with R800m taken from reserves and R1.7bn from revenue generated by the provincial government.

At the “lock-up”, Mvoko said the deficit meant the province had to dig deep to close the gap.

“The R95.4bn is not what the departments wanted,” he said.

“The departments submitted budgets that are more but we had to look at what is affordable and a priority.”

He said the province may have needed more than R95.4bn but the situation had to be managed.

“We are nowhere near being able to give departments what they want,” Mvoko said.

He conceded there was not enough money to attend to the needs and challenges of the province.

“There are not enough funds for our priorities. But we continue to spend most of our budget in the social sector.”

He said the departments of education and health had taken the biggest slice of the budget, with a combined R73bn.

“But we pride ourselves on attracting investments in the province.”

The province has attracted investments worth R173bn since 2019.

Asked how much money the province had taken from its reserves, Majeke was at first hesitant to answer.

Pushed further for a figure, he said the provincial government had taken R14bn since 2013.

“We have dipped in [and taken] about R14bn over the years.

“About R10bn was taken to fund the health department.

“You will find in different years we don’t dip into our reserves and it becomes a level of cushion for which we have been advocating, including in local government because there needs to be that liquidity,” he said.

Majeke would not reveal how much was left in the reserves, only emphasising it was enough to go from one financial year to the next.

“We don’t want to give the number to the public but I can assure you it is not a bad balance.

“It can take us over the year which means from one budget to the other we can sustain [ourselves].

“From one budget to the other we’re able to put certain kinds of measures in place,” Majeke said.

One of the factors leading to the depletion of reserves is the cumulative loss of R33.925bn between the 2013/2014 and 2023/2024 financial years which is attributed to fiscal consolidation.

Fiscal and sustainable resource management deputy director-general Jongile Mhlomi said the province had been on a downward trajectory since the census of 2011 when the province lost R5bn.

In recent years, the Eastern Cape budget has faced reductions due to an exodus of residents from the province, leading to a decrease in the national allocation.

Nelson Mandela University economics professor Charles Wait said the spending of reserves remained risky and a third-party mechanism was needed to control when these funds could be spent.

“The minute a government body accumulates a reserve it should preferably be safe-kept by an independent body like the South African Reserve Bank and only released on the passing of new legislation.

“This allows opposition parties to debate such legislation.”

Fort Hare University business management department lecturer Ellen Rungani said dipping into reserves showed underlying fiscal management issues.

“The use of reserves to cover the shortfall can be viewed as a necessary measure to stabilise the fiscal environment in the short term, especially when looking at the economic outlook downturn and circumstances of the economy.”

However, she said it had drawbacks when reserves were solely used to cover budget shortfalls.

“It signals underlying issues in fiscal management and means you have inadequate revenue generation, and ultimately drawing on reserves could hinder the province’s ability to invest in essential infrastructure services.

“Whether it is good or bad depends on the context and the magnitude of the shortfall,” she said.

Reacting to the province tapping into cash reserves, EFF MPL Zilindile Vena labelled the move as reckless.

“It’s reckless, especially when one says we have allocated funds this way but the budget is not enough and now we have to dip into reserves we don’t have.

“It means these comrades are panicking and know they’re not coming back after the elections and this is their way of collapsing everything.”

DA MPL Yusuf Cassim raised concern that the provincial government would be unable to pay accruals arising in the financial year due to the funds taken from the reserves.

“In last year’s budget,  he dipped into the reserves to the tune of R1.2bn and now it’s more than R800m so over two years R2bn has been taken.

“We’ve now depleted everything that is in the reserves and we are overspending what we have available in the reserves and that is not taking into account the R5bn of accruals that will still be owed from the current budget going forward,” he said.

Some of the funded priorities announced by Mvoko include:

• R5bn for tertiary and specialised hospital services;
• R14.4m for poverty alleviation;
• R335m for security and leasing of properties for office accommodation;
• R422m for the support of traditional leaders; and
• R22m for disaster management.

Mvoko, in his speech, said the South African National Roads Agency (Sanral) would spend R60bn in the province within the next five years.

“Through this budget, the province is reinforcing the work that is being done by Sanral in constructing, fixing and maintaining local roads.

“In 2024/2025, an amount of R512.9m has been added to the provincial roads maintenance grant, increasing the grant from R1.5bn to R2.1bn.”

He said the department of public works and infrastructure held the primary revenue potential for the government through rental collections from government-owned properties.

“The province is in the process of appointing students who will gain practical training from this deployment as part of the studies to assist with the recovery of rental from the leased properties in the 2024/2025 financial year.”

He welcomed the announcement that the Stellantis Group would invest R3bn into Nelson Mandela Bay.

“The ongoing investments by these car manufacturers are a show of confidence and a pledge of commitment to our economic growth efforts and objectives.”

He said the Automotive Industry Development Centre Eastern Cape, working with the Coega Development Corporation, East London Industrial Development Zone and Eastern Cape Development Corporation, was tasked with attracting new original equipment manufacturers (OEMs) to the province, especially those that produced electric vehicles.

Over the medium term, he said the government would intensify its household food security programme with a focus on providing food production inputs to women, youth, people with disabilities and military veterans.

Support measures include food production packs for poor households that will include seeds, seedlings, fertilisers and agrochemicals, and climate smartboxes.

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