MTBPS confirms grim nature of fiscal challenge facing SA

Prof. Raymond Parsons

Given the domestic and global headwinds facing the SA economy, the MTBPS strongly shifts the narrative towards recognizing the grim nature of the fiscal crisis that has to be addressed in SA. That’s the word from NWU Business School Economist, Professor Raymond Parsons.

“Finance Minister Mboweni frankly and realistically confirmed that, unless progress is made in reducing the cost-drivers of government as well state-owned enterprises like ESKOM, SA is in danger of falling into a ‘debt trap’. The MTBPS painted a bleak fiscal picture on the basis of an expected growth rate of only about 0.5% in 2019, and a forecast of 1.7% growth in 2020.”

Professor Parsons stated that the MTBPS implies that the key mechanisms financing public expenditure, taxes and deficits, have reached a point where they reduce the rate of economic growth and hence have also shrunk tax revenues.

“The MTBPS rightly emphasized that efficiency matters, and never more than today. The more the government wastes, or spends on non-essential purposes, the less is available for necessary expenditures and the harder it comes to frame responsible Budgets in future.

“It therefore remains a matter of concern that, despite agenda of remedies proposed in the MTBPS, they fall short of preventing strongly escalating public debt up to 2022/23.”

Professor Parsons believes that as long as government spending is not better controlled, the negative debt ratios will continue to rise. “The fiscal risk remains in the longer-term outlook and Finance Minister Mboweni is right to urge action now. There therefore needs to be more momentum behind the direction outlined in the latest MTBPS in general – and in particular what further needs to be done to restructure Eskom.”

What SA also needs to turn the fiscal situation around is a strong and sustained improvement in its flagging growth rate, which must remain the overall priority in economic policy, Professor Parsons states.

“The critical test will be the extent, on the one hand, to which pro-growth reforms needed to turn the economy around are urgently implemented and, on the other, the tough decisions required to break the mould around excessive government expenditure are taken. This will include tackling the vexed question of the role of the public sector wage bill and its disproportionate impact on SA’s public finances, sooner rather than later.”



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