Since the contracts are mostly denominated in dollars, if devaluation is more rapid than expected the impact will be even greater. Defence will grow by 8,5 per cent a year over the period, compared to 7,6 per cent for expenditure as a whole, and only 6,6 per cent for the main social services and the criminal justice system. An unexpected deterioration in the exchange rate would have even more severe implications for the social wage. Some 85 per cent of the package is denominated in foreign currencies. Given the expected slow real growth in the budget, rapid depreciation would squeeze other functions even more than anticipated.
Contractual obligations make it difficult to reduce spending on arms procurement in the short run.
The People's Budget proposes, however, that any further procurement be subject to the strictest possible scrutiny. Government should immediately inform vendors that it will not procure additional armaments under existing contracts. If evidence of corruption surfaces, South Africa should withdraw from the existing contracts. The People's Budget also explored ways to improve the quality of government spending. Reports on under-spending in government departments have created the impression that they do not have the capacity to spend more resources.