The cost of servicing our debt is eating our future
20 November 2019
The medium term budget policy statement, the so called “mini budget” should be a wake up call. It shows how unsustainable our current trajectory is: debt is rising, growth is falling, and there is no real plan to get the government’s finances under control. “Hope,” as finance minister Mboweni said, “is not a strategy.” Unhelpfully, the mini budget provided neither. By far the most shocking data in the mini budget shows the extent to which previous estimates of the sustainability of SA’s fiscal policy understated the severity of the crisis. Analysts and financial markets were genuinely appalled by the extent to which the Treasury itself estimates that our fiscal position has deteriorated.
As recently as February, the Treasury estimated that public debt would peak at about 60% of GDP in 2023. Now it says debt will rise to 74% of GDP in 2023, and will keep rising thereafter, hitting 80% by 2027. Given that the equivalent figure was 30% in 2008, the collapse of our macroeconomic fundamentals is truly astonishing. These figures exclude the debt of SOEs, which would add as much as 10 to 15 percentage points to these estimates. There are four major reasons why the Treasury’s estimates have deteriorated so badly in the past nine months.
First, its assumptions about the rate of economic growth are much lower, implying that tax collection will also be lower.
Second, the continued underperformance at the South African Revenue Service (Sars) means there is even less revenue collected than reduced growth would normally be assessed to have generated.