Fix the fiscal crisis

26 July 2024

The Centre for Development and Enterprise (CDE) released a new report today urging the government of national unity (GNU) to make achieving fiscal sustainability one of its top priorities. It is vital the President’s words in his opening of parliament speech are matched by actions. The government must refrain from making unaffordable spending commitments. This includes avoiding agreements that escalate public sector remuneration spending faster than the economy’s growth rate.

The costs of South Africa’s unsustainable fiscal position are high and rising, and the failure to address it causes enormous harm. The speed at which public debt levels have risen in South Africa has had very significant negative effects on the country’s growth prospects.

A major challenge is wasteful spending that generates very few benefits or returns. This is especially reflected in the poor performance of our schools, hospitals, police, courts, railways, roads, power stations etc. Better management practices and dramatically improved accountability systems must be introduced to turn this around, but that will require committed leadership.

Every year some 10 per cent of the national budget is transferred to municipalities and metros and there is almost universal consensus that this money is not being spent effectively. The President should urgently appoint a task team to relook at the structure and financing of local government and recommend actions to be discussed in Parliament within six to eight months.

Faster economic growth, which is critical to attaining fiscal sustainability, can be achieved through improved governance and a lot less corruption combined with reforms aimed at strengthening the role of competition in the economy.

These and other crucial actions the new government must take are outlined in ACTION THREE: Fix the fiscal crisis.

For the full report, see here
For the media release, see here

Issued by Ann Bernstein on behalf of CDE, 26 July 2024