South Africa has a debt conundrum. The economy was already saddled with a heavy debt burden — with much of the money that was borrowed siphoned off, squandered and misspent — and was stuck in the rut of recession before the Covid-19 pandemic pushed it into the abyss. Now revenue is falling just when a fiscal stimulus is needed the most. The budget deficit is on course to exceed 15% of gross domestic product and overall debt is set to swell to a level beyond 80% of GDP.
Moola noted that there was a time when South Africa could have turned on the fiscal taps to help stimulate growth. The problem is that much of the money went down the patronage drain. This gets to the heart of the matter. Growing debt with brisk economic growth, which in turn lifts government revenue, is sustainable. Without growth or policies to promote growth, it becomes a fiscal burden. And it leaves you short of options when the going gets really tough.“I think we have managed not to spend our way out of trouble. If you look at the fiscal response we have had , it’s been modest. And the modesty of the response is a function of our fiscal state pre-Covid.
“We have not spent a great deal more, but we are still going to have one of the largest budget deficits in the world this year . And that tells you the position we came into this crisis in … Spending is useful when you have pipes that can efficiently disperse the money. The social welfare grants are the best piece of spending we did. The PPE has been atrocious and just highlights the inability of government to actually disperse money efficiently and honestly,” Moola said.
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