National Treasury confirms SANDF cost-cutting measures

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That cost-cutting measures are coming to the South African National Defence Force (SANDF) has been confirmed by a National Treasury letter to Acting Secretary for Defence Dr Thobekile Gamede.

The letter, dated 31 August 2023, was sent by Ismail Momoniat, National Treasury Acting Director General, and presented to Parliament this week.

With the subject ‘Cost containment measures to assist national departments, public entities and provinces to close fiscal gap,’ the letter reminded Gamede that at its 15 August 2023 meeting, Cabinet noted the economic growth outlook for South Africa has worsened significantly relative to expectations, “given the impact of more intense loadshedding and freight and port logistical constraints, amongst other factors. In addition, the fiscal outlook-was negatively affected by the higher-than anticipated [public sector] wage settlement.”

Since the tabling of the 2023 budget, low economic growth has resulted in deteriorating revenue collection and funding conditions, and tax revenue under-collection has worsened, “already resulting in a lower projection of the revenue estimate for 2023/24,” the letter stated. “Funding performance through the debt markets has also been poorer than anticipated over the past few months. As a result, we face unprecedented challenges for the current 2023/24 financial year, even as we hope conditions will improve over the medium-term, once the underlying factors like loadshedding and logistical constraints are addressed.”

Due to the reduced funding collected, National Treasury said it is identifying immediate measures to reduce the level of government spending. “Heads of national departments should implement the following cost containment measures,” Momoniat wrote to Gamede, and these include:
Freeze the hiring of new employees
Freeze the process of advertising new procurement contracts for all infrastructure projects, unless approved otherwise by the National Treasury
Drastically reduce spending on travel by freezing all non-essential travel
Freeze spending on catering, conferences, workshops and other related goods and services that have not yet been contracted.

Momoniat warned that “these measures alone will not by themselves fully restore fiscal sustainability. The National Treasury will work with all national departments and public entities, as part of the coming adjustments budget process, to identify further measures to consolidate budgets.”

Furthermore, “National Treasury would also like to clarify that no additional funds have been identified for the 2023 Public Service Co-ordinating Bargaining Council wage settlement,” meaning that “departments and public entities that receive transfers from the National Revenue Fund must absorb the cost of the 2023 wage agreement within departmental baselines. We appreciate that these measures will be especially challenging for personnel-intensive departments and will engage with such departments and provinces.”

The Department of Defence will have to find R2.4 billion for these salary increases in 2023/24, according to a draft presentation seen by defenceWeb on the impact of National Treasury budget cuts affecting the Department of Defence.

Momoniat told Gamede that these austerity measures “can be relaxed as soon as economic and fiscal conditions improve. However, given the fiscal conditions, we have little choice but to request all affected institutions to implement these measures from 15 September 2023.”

Parliament’s Portfolio Committee on Defence and Military Veterans (PCDMV) on 6 September was told by Chief of Human Resources, Vice Admiral Asiel Kubu, the Department of Defence (DoD) is facing a potential shortfall of R6.712 billion during the 2023/24 financial year. This includes the R2.8 billion salary shortfall carried over from 2022/23; a R2.4 billion incremental increase (for salaries) that National Treasury will not be providing to the DoD; and a “R1.4 billion shortfall” this year.

According to the draft presentation seen by defenceWeb, the defence budget for 2023/24 is also expected to be cut by around R1.9 billion.

The Department of Defence is battling to deal with these cuts, especially as it uses more Reserve Force mandays than expected in order to fulfil its obligations, including military operations and to secure military installations. Some money has been saved on shrinking personnel numbers, but this has not been enough, and the SANDF has overspent on salaries to the tune of R12 billion over the last seven years.

African Defence Review Director Darren Olivier, speaking to eNCA about South Africa’s defence spending, this week said “we’re past the point of crisis. Essentially at this point we are going to lose certain capabilities and they cannot be recovered unless there’s an unreasonable level of funding. It’s really important for us to be realistic about this now.”