South Africa won’t meet debt targets, president’s council says

Government should also boost an economic stimulus package to 15% of GDP, from 11%.
President Cyril Ramaphosa. Image: Bloomberg

South Africa won’t be able to meet its finance ministry’s debt targets and it may be undesirable for it to attempt to do so at a time when the economy is being battered by the fallout from the coronavirus, according to an advisory panel appointed by President Cyril Ramaphosa.

In a more than 100-page document advising the government on an economic recovery program that Ramaphosa is due to unveil on October 15, the President’s Economic Advisory Council said spending cuts could hold back growth and have other adverse consequences.

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“We risk having nurses and doctors being unable to provide health services because of medicine stock-outs, teachers paid but with no learning materials or classrooms, police officials grounded in stations because there is not enough petrol to go out on patrol,” the panel said. “This undermines the progressive realisation of socio-economic rights to health, education and basic services, and will reduce the efficiency of social spending, which is currently very poor, still further.”

The plan, which was submitted to the president and seen by Bloomberg, is an attempt to counter the effect of a pandemic that is expected to result in South Africa’s biggest economic contraction in almost nine decades. Finance Minister Tito Mboweni has said he plans to arrest the increase in debt levels at 87% of gross domestic product in the 2023-24 financial year, falling to 74% in 2028-29. Without an intervention, the ratio could climb to 141% over the next decade, he said.

Read: Mboweni: Close the hippo’s mouth or face Argentina-like debt crisis

The advisory panel’s proposals build on a plan submitted by a group of labour, business and government leaders and another by the ruling African National Congress, which were considered by cabinet. Tyrone Seale, Ramaphosa’s spokesman, didn’t answer calls to his mobile phone or immediately respond to a message seeking comment.

The government should also boost an economic stimulus package to 15% of GDP, from 11%, and set up a rescue fund for businesses that were healthy before a lockdown was imposed in late March to curb the virus’s spread, said the panel, which has about 20 members ranging from academics to a former Tanzanian central bank governor. It also called on the South African Reserve Bank to use the targeted long-term refinancing operations model piloted by the European Central Bank — a measure that offers banks long-term funding on attractive terms to stimulate lending.

Increases to the fuel levy and estate taxes should also be considered, as should a three-year “solidarity tax” that would boost income tax for higher earners, the panel said. It recommended that the state’s wage bill be curbed and increases to welfare payments be limited.

The panel criticised the government’s foot-dragging on encouraging the expansion of renewable energy output and delays in allowing private companies to generate more of its own electricity to end regular power cuts that have hindered economic growth.

“Those countries not adapting to a green transition will find themselves behind and excluded,” it said. “The constraints to achieving this do not lie in our natural-resource endowments, the availability of appropriate technologies, or even access to the necessary finance — it lies in our heads and in our political economy.”

Eskom Holdings, the state-owned power monopoly, should be mandated to raise “large-scale concessionary climate-finance from the international community” in return for accelerating the closure of its coal-fired plants,” it said.

The council also said:

  • Pension funds and other private investors will back infrastructure projects if there is a clear pipeline for the next 10 to 20 years.
  • Allowing the construction of 5 000 to 6 000 megawatts of electricity generating capacity a year could encourage R500 billion in investment and create 50 000 jobs.
  • R100 billion will need to be spent on the power grid by 2030
  • The introduction of a basic-income grant could cost R243 billion a year and would necessitate tax increases.
  • To accelerate land reform, an agriculture development fund should be set up, funded by the private sector and donors.

© 2020 Bloomberg

COMMENTS   27

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All sounds like another government fairy tale. Wake up!

…plus the ANC govt lies to its citizens.

Here they indirectly state that don’t have money, yet they have sufficient billions to plan to continue the funding of a ‘new’SAA “Banana Air” 😉

If we strip out all the corruption, wastage…and their staff WORK for a change, govt will be able to get one very well, with even HALF of the income they’re receiving now.

But no…they will keep on wasting billions. Proof that they receive too much. Govt needs to get HALF their current income, then they will learn to be like business people.

I noticed a man in the DRC walking with one gum boot on the outskirts of Kinshasa

I asked the driver, why does the man bother, if one foot get muddy?

the driver said “Maybe he is content just having the one boot” “Sometimes foreigners will give money for a new pair”

A rescue fund for businesses that were successful before Covid lockdown will miss all the ones that have had to shut their doors. But some are trying to claw their way back and could benefit provided such a package comes very quickly and controls are in place to prevent corruption and theft.
A higher fuel levy will push up inflation.
What does the panel say about SOEs besides Eskom?

The fund will be there for black owned businesses only.

A 15% stimulus has more available for corruption and graft

Can I stop paying taxes if I disagree please.

This is precisely why SA’s economy is collapsing. The President’s Advisory Council is filled to the brim with naïve socialists who believe that government is the panacea for all economic ills. Reality check!! We are in a serious debt trap. Everything in our power needs to be done to escape it. Up until now, not a single government worker has had a reduction in their salary. Yet, here we are in the depths of the biggest debt hole in the country’s history, and our leaders are doing nothing substantive to address the underlying issues. Instead, they put blinkers on and pretend that the borrowing more and more is the solution. To escape the trap, we must cut spending immediately and dramatically. This means cutting public sector working salaries by 15-20% and rolling back all extra government assistance programmes. We must do it now before its too late.

The Government is doing what it does because people elected that Gov – it cannot change because that was it’s mandate by the electorate. Our problem is we’re being held hostage by a majority that doesn’t want what we want and we have no power to not participate as a taxpayer.

Well said!

If I can add, ….the (much needed) cutting of public sector salaries, will only happen once our fat pension funds pot has run dry 🙁

The pensions is like the brake dics of the under-maintained vehicle that is SA. First the tyres are run down into shredded carcasses, then our ANC runs on the rims. Once the rims are gone, we’ll we moving along on our brake disks….and then we’ll grind the axle-housing down.

Precisely what you say…the Govt is seen as the panacea by socialist/communists. The ANC just need to free the private sector properly & INTERFERE LESS with society.

I saw once a very good documentary about the Angolan Civil War and one family’s experience with survival.

Moral of the story is, you live day by day to make ends meet.

The concept of saving for the future or old age does not work.

The matter is before the labour court. Gov and the unions want to speed it up by taking it to Labour Appeals court.

Civil servants pay is now 55% of GDP!

Do not fear – Frog boiler Cyril has another plan…all is good .

I’m not sure you took the trouble to research the members of the panel. They’re certainly NOT a bunch of naive social economists as you incorrectly state. Take the trouble to read the report and find out who serves on the panel.
The most important recommendation is to cut the salaries of civil servants to save on a wage bill that is presently 55% of GDP!
So don’t spread fake news…

I hear you, but one has seen so many failed plans out of the ANC that one would be fully justified in doubting anything they say

@CYRIL R – You have the wrong people advising you!

lets Support the ANC “collective theory” in that no one is individually responsible : Thats means increase VAT : Everyone can contribute according to their spending !!!

“We risk having nurses and doctors being unable to provide health services because of medicine stock-outs, teachers paid but with no learning materials or classrooms, police officials grounded in stations because there is not enough petrol to go out on patrol,” the panel said.”

Haha. The panel is out of touch. This is happening already; what risk.
– Pando for any aches and pains,
– Police have no writing material at police stations,
– Teachers ask parents to photostat materials.

Zim 2.0 has inevitably arrived. Do you need more proof? Your guavamund has just admitted to it publicly.

I am very concern for the future of this country. An increase in patrol levy will hurt the consumer that’s still recovering from the lock-down… Government must stop the bleeding (Corruption and fraud)within its structures.

Also the main aim should be to create jobs, more people working more taxes, less people on welfare grants… the only grants that should be available should be pensions for old people, we must integrate disable peoples into the workplace (those who are able to perform basic tasks.)

Government can also increase spending but what they are spending now is being stolen by corrupt government officials and private officials.

I believe a change in mindset, mission, operations and outlook will bring about much relieve for all in the country. An increase in PAYE will kill off the tax base because why work if almost 75% of your income is going to government for corruption, it will be more be more beneficial to be unemployed start a family and get grants and the so-called universal income than to work and pay high income taxes.

Just my two-cents.

It’s called an “Only today culture”! Yesterday has been erased, so there is no learning from yesterday’s mistakes, and tomorrow is too much of a worry and responsibility to consider, lest it mess with today’s gravy train plunder!! A true African phenomena!

“This undermines the progressive realisation of socio-economic rights…” and what the poor will never understand is that the rights were undermined by a thieving ruling class which is just too happy for the corona scapegoat

…yet IF govt INTERFERES LESS with the private/business sector, and truly free up business, then Govt won’t need to spend on stimulus packages.

Allow the ‘invisible hand’ of the (free’d up) economy to do it’s thing, and society will benefit without govt have to spend any money.

But alas….wasting my breath, as we talk to socialists/communists. Let’s see how long the ANC stays in power without funding for SASSA grants, etc.

Lets create the world’s highest unemployment rate and then when we’re completely broke, we provide a basic income grant of R 243 Bill per year. That is R 665 MILLION every singe day!!!

fort-russ.com/2020/09/belarusian-president-lukashenko-says-imf-offered-a-billion-usd-bribe-to-impose-covid-19-lockdown/

In exchange for $940 million USD, the World Bank and IMF demanded that the President of Belarus:

• imposed “extreme lockdown on his people”
• force them to wear face masks
• impose very strict curfews
• impose a police state
• crash the economy

“large-scale concessionary climate-finance from the international community” in return for accelerating the closure of its coal-fired plants,”

I am confused, are we not still busy building Medupi and Kusile? I thought these were coal fired? I guess I got it all wrong and these are actually two huge (incredibly expensive) windmills…

I also thought the government pushed back against the very successfull PPPP solar and wind energy projects because something BEE related

End of comments.

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