1 minute read
Macroeconomic considerations
To achieve the objectives of the final blueprint, fiscal concerns must be balanced with inclusive growth.
The National Treasury presented two debt scenarios in the June 2020 Supplementary Budget. In the passive scenario, which is not deemed a viable option for South Africa and was presented for illustrative purposes only, debt will spiral upwards, exceeding 100% of GDP from 2022. The possibility that government will not be able to repay its debt leads to higher debt-servicing costs. This redirects money that could be spent on health, education, and other policy priorities to local and overseas bondholders (National Treasury, 2020).
Advertisement
In the active scenario, government stabilises debt through a combination of reforms and measures to boost economic growth, increase revenue collection and lower expenditure. The deficit would be reduced significantly starting in 2021 and the debt level would start decreasing from a peak of 87% of GDP in 2023 (National Treasury, 2020).
The Organisation for Economic Cooperation and Development has proposed a progressive consolidation scenario where government does not pursue highly constrictive fiscal policy and the reduction of the deficit happens over a longer period. In this scenario, the debt level will stabilise by 2028. This progressive consolidation scenario is based on a deficit reduction of 1% a year of GDP and 2% GDP growth from 2025 (Minsat, 2021).
Balancing fiscal concerns with inclusive growth
Source: Minsat, 2020
Macroeconomic considerations
Although there are differing views about the approach to debt reduction, taking a longer-term approach to fiscal consolidation could free up capital for investment in economic infrastructure that would be beneficial to economic growth.
Pension funds must also be encouraged to invest in infrastructure, following amendments to Regulation 28 of the Pension Fund Act. However, this will require confidence in the ability of the State to be able to prioritise and prepare proper economic plans around bankable infrastructure projects.
