Can a Greek-like national debt conundrum occur in South Africa? I don’t know. But the issue should concentrate our minds as we watch the Greeks from a distance wrestle this beast and its devastating bailout dragon.
Over a cup of strong coffee, a Cypriot and I puzzled over this question the other day. We are just as fascinated with this tragedy as many in the world are. We were talking about the plight of Greeks when this question insinuated itself into our conversation.
You see, a few years ago, Cyprus was in the same massive national debt trouble as Greece is at the moment. My Cypriot interlocutor experienced the phenomenon first hand, and the two countries share at least some of the causes of the problem.
These include reckless politicians buying popularity and votes by adopting unsustainable spending programmes, corruption, poor tax collection, borrowing money to pay for consumption and paying insufficient attention to the productive economy. As a result, the banking system collapsed, external trade was impossible and the state was unable to pay its bills, including salaries.
Like its Greek counterparts, Cyprus ran to the European Central Bank, the European Commission and the International Monetary Fund (IMF) for help. The austerity measures imposed by both the creditors and the Cypriot state were harsh and extremely painful for Cypriots.
Citizens bore the brunt of the austerity. The state levied varying amounts on bank accounts, depending on the size of the deposits, to capitalise collapsed banks. There were severe restrictions on the amount of money that could be withdrawn from banks by businesses and individuals, as well as a ban on the export of money abroad. Although Cyprus is over the worst patch as it tries to climb out of the austerity hole, it is not yet out of the woods. Cypriots are still paying the price for the folly of their government.
My interlocutor has no sympathy for Greece, but his heart goes out to its poor and elderly who played no part in the decisions taken by their ruling elites. He pointed to the Greek state’s prolific borrowing to finance a comfortable lifestyle for the rich and mighty, a dodgy tax collection system that saw many Greeks paying nothing or very little, a bloated public service that earned more than it was worth, and a lax attitude towards the building and sustaining of the productive side of their economy.
Some of the demands of the austerity measures, such as the increase in sales tax, the reduction of the civil service, the selling of state-owned institutions and the reduction of the size of the pension bill, have a devastating effect on those who live from hand to mouth.
There are some things we do well in South Africa that might stand us in good stead and militate against a slide into a Greek scenario: our tax collection machinery is superb and the pensions are paid out of a contribution-based fund and not directly from the fiscus, as the case is with Greece. With everyone paying his or her proper share in taxes, the state is not likely to run out of cash for its expenditure. And in our situation, the pension system will not easily run into difficulties in tandem with the state’s bankruptcy.
But make no mistake, we do have a lot to worry about. First, as a proportion of the national budget, the state salary bill is too high. The government seems to be unwilling or unable to come to an understanding with civil servants on that score.
Second, it is unsustainable to have more than 17-million of our citizens depending on social grants for their livelihoods. This is particularly worrying when the economy is not growing quickly enough to increase the number of people paying taxes. Hard as it is, we should be investing more in the productive side of our economy to ensure more citizens are able to provide for themselves.
Third, the provision of free housing for a certain class of citizens on an indefinite basis is a problem. I am convinced that the governing party knows that this cannot go on forever. But it also knows that curtailing the programme would rob it of an advantage with the voters. We should be moving towards a situation where as many of our people as possible are economically empowered to build or buy their own houses.
Fourth, the South African national debt has been steadily rising in recent years. If this tendency is not arrested, we might find ourselves knocking at the doors of the IMF and similar institutions for assistance in balancing our books. That would be the beginning of major woes.
The bankruptcy spectre is not on our horizon yet, but that does not mean we should not keep watch for its advent.
Mosibudi Mangena is a former Cabinet minister and president of the Azanian People’s Organisation