Stick to the long game: Hannah Marais
In October, the medium-term budget policy statement painted a dire picture of the state of South Africa’s economy. Against the backdrop of multiple years of weak growth pre-Covid-19, rising unemployment, a sizable fiscal deficit and fast-expanding debt-to-gross-domestic-product ratio, the government will be forced to contend with severely limited budgetary space, and be unable to take the country out of its economic predicament through spending.
The 2021 budget should not deviate from the proposed five-year fiscal consolidation plan. This includes balancing expenditure choices, such as reducing the public-sector wage bill. A significant deviation from the proposed consolidation path could upset markets, dent investor confidence and, at worst, place South Africa on a path towards a debt trap.
The good news is that there have been green shoots, both in terms of a rebound in economic growth, as well as an overshoot on expected tax receipts in recent months.
Global tailwinds should also not be discounted — global vaccine distribution, low cost of capital, and rising commodity prices point towards a global growth rebound in 2021.
Among the immediate challenges is the roll-out of the vaccine. Indeed, the uncertainty around this, weak business and consumer confidence, ongoing structural weaknesses, and possible third and even fourth waves of infections, pose some of the biggest risks to the country’s near-term economic recovery.
Additional borrowing to fund the vaccine roll-out and other programmes to support the economic recovery should be an option because it could see debt increase to unsustainable levels. South Africa has been borrowing R2.1-billion a day, with debt service costs already crowding socioeconomic spending.
With a supportive economic environment in 2021, raising tax rates might not need to be on the cards. Additional revenues could possibly be raised through “tax-bracket creep” or increasing fuel levies.
Whatever the budget proposals will be, the road to rebuilding South Africa’s economy and stabilising the fiscus will likely be a long one with the need to implement structural reforms even more urgent than before. — Hannah Marais is associate director and insights leader at Deloitte Africa.
Numbers don’t lie: Bonang Mohale
Firstly we must send some top miscreants to prison; secure vaccines; execute on the long-promised deep systemic socio-economic reforms; reduce the soaring government debt and fix the more than 740 state-owned entities and companies.
We would do well to focus on GDP growth, increase our infrastructure, and execute on the ten-year-old spectrum auction mirage.
The fiscal crisis is coming, precipitated by the financing crisis. The private capital markets are simply not willing to continuously roll over an ever-growing amount of South African debt. — Bonang Mohale is the chancellor of the University of the Free State and chairman of the Bidvest Group Limited.
If we, again, waste this opportunity presented by the budget speech 2021, we might as well batten down the hatchets in preparation for the full sovereign-debt default in a few years.
In a recent note, Moody’s said that it would likely downgrade South Africa — already two levels below investment grade — further if its debt burden continues to grow.
Fitch already has the country three levels below investment grade. It is practically impossible to keep on the current trajectory and momentum. Our debt-servicing costs are now R20-billion; our deficit is sitting at 16%. We are forecasting less than 3% gross domestic product (GDP) growth in 2021 and only in 2024 will we reach the 2019 GDP growth level.
It will take us up to 10 years to get back to pre-Covid-19 employment levels. Tax revenue projections are at about -18%, and the unemployment rate is about 40%.
However, ratings agencies are looking for only four things: economic strength; fiscal strength; institutional strength; and susceptibility to event risk.
Business has been consistent about what needs to be done. The sector argued that the 2020 medium-term budget policy statement would be crucial and would determine our ability to respond to the consequences of Covid-19 and maintain the sustainability of government’s pro-poor and pro-growth policies. The government has great intentions but woefully inadequate execution.
But how do we address the lowest levels of confidence, trust and hope since World War II? Firstly we must send some top state capture miscreants to prison; secure vaccines; execute on the long-promised deep systemic socioeconomic reforms; reduce the soaring government debt and fix the more than 740 state-owned entities and companies. We would do well to focus on GDP growth, increase our infrastructure, and execute on the 10-year-old spectrum auction mirage.
The fiscal crisis is looming, precipitated by the financing crisis. Private capital markets are simply not willing to keep rolling over an ever-growing amount of South African debt. — Bonang Mohale is the chancellor of the University of the Free State and chairman of the Bidvest Group
More than belt-tightening needed: Nthabiseng Moleko
An economy with more than 11-million unemployed South Africans, a contracting secondary sector, lacklustre growth and the highest global inequality, yielding further pressure to the treasury in its debt servicing and maintaining a balanced budget.
You would think this resulted from the Covid-19 economic shock, but a pre-crisis dismal financial performance simply pushed the country further into an economic abyss.
Expectations were high that the reported R500-billion stimulus package would ignite household demand and economic activity. However, output continues to contract, and the job losses haven’t recovered in the last quarter, despite resumed economic activity post-lockdown.
The timing of interventions and the use of countercyclical fiscal policy has never been more necessary. The only problem is that we in South Africa are still debating whether fiscal policy and fiscal stimulus can help us deal with the economic crisis.
Yet the rest of the world, through the Asian crisis of the late ’90s and global financial crisis of 2009, saw developing and developed nations practising Keynesian economics.
Our fiscal policy seems targeted at mainly pleasing credit-ratings agencies and improving business confidence. Yet the role of the state in developing and financing economic development post-crisis is a necessary condition. It cannot happen without reforming the state’s role in advancing the development objectives of South Africa.
To privatise state-owned entities and diminish their role in the development trajectory will render the inclusive and redistribution growth path needed a dream. It would only affirm that South Africa’s economic policy is geared towards financialisation, big business and multinationals, and benefits only a small minority.
Macroeconomic policy is far broader. The countercyclical fiscal policy offers fiscal multipliers that will stimulate both supply and aggregate demand during a crisis.
A wealth tax that limits repatriation of funds through profit-shifting and illicit flows should be implemented to encourage long-term investments. This would encourage long-term structural reform to advance a growing manufacturing sector and transform South Africa’s investment pathways.
If policymakers’ goal is to ensure an inclusive growth path, redistribution, sustainability and equity, ensuring poverty reduction and improved employment, the current macroeconomic policy instruments and the fiscal policy path has shown us unless we change course, we will remain in crisis — a crisis of economic thought, and not only of Covid-19. — Dr Nthabiseng Moleko is a development economist at the University of Stellenbosch Business School.