As the Greek debt crisis escalated last month we drew some gloomy conclusions about its potential impact on the South African economy and called on Finance Minister Pravin Gordhan to set out a clear assessment of the risks and a plan to contain them.
While market commentators continued to utter blithe encomiums about the insulation of South Africa’s well-regulated banks, Gordhan began to do exactly that. The picture he outlined in Parliament on Wednesday suggests that his team at the national treasury is anxious to mount a robust response to the turmoil in Europe.
South Africa’s fiscal deficit — forecast at 7.3% of gross domestic product for 2009/2010 — now looks set to come in closer to 6.7%. Those numbers are tame by the standards of the United States, Britain and the Mediterranean littoral, but they still mean spending more on interest and less on delivery.
The deficit reduction, which comes as a result of the government savings so vigorously pursued by Gordhan, not only improves those ratios, it also helps to keep the government’s finance costs under control. The medium-term picture is better still, with the deficit now projected at 4.1% by 2012/13.
But South Africa remains exposed to the changeable winds of the global economy and to the effects of severe austerity in the European Union, which is our largest trading partner.
Gordhan is not fudging those concerns, saying we face “a very uncertain time ahead”.
This kind of fiscal rectitude seems natural for Gordhan, who spent so long collecting the state’s cash that he has a very clear idea of the principles on which it should be distributed. He seems bolder, too, in articulating those principles, which is something we urgently need from a government that too often exhausts itself in equivocation and efforts to appease every constituency in a divided tripartite alliance.
There are those who will say, and not without reason, that tight spending controls here and in Europe will pinch off our gradual economic recovery. But there are countervailing factors, including the help that exporters will get from a weaker rand. In any event, the economic risks of a sudden stop in foreign capital inflows and higher premiums on our bonds outweigh a crimp in the growth rate. But we do seem to be back to a lamentable 2% to 3% growth rate. Given our poverty and unemployment problems, that really amounts to stagnation.
We now need to hear from the rest of the state apparatus how it is going to take advantage of the stability provided by Gordhan. The department of energy needs an integrated resource plan that no longer leaves our entire energy supply in the hands of Eskom and protects us from outages. Transnet needs to start moving freight efficiently and at competitive prices — helped by a labour movement that understands its larger social role.
And the departments of planning, trade and industry, economic development and labour need to focus on quick wins — ways to unlock competitiveness in our economy now, rather than creating complex statist solutions that will take decades to deliver benefits, if they ever do.