South Africa: Government Should Spend Far More, Not Less, to Boost the Economy

analysis

What is really required to stimulate economic growth - as opposed to simply reducing government expenditure - is a planned and co-ordinated effort to significantly spend on infrastructure and, if necessary, borrowing even more from foreign investors to do so.

A central concern expressed in the Medium-Term Budget Policy Statement (MTBPS) delivered on 30 October 2019 by Finance Minister Tito Mboweni is South Africa's increasing debt-to-GDP ratio - expected to reach 80.9% by 2028. "This is a serious position to be in," said the minister, "the consequence of not acting now would be grave for South Africa. Over time, the country would likely face mounting debt service costs and higher interest rates and may enter a debt trap."

The major causes of the increase in debt-to-GDP, according to Mboweni, are an increase in government spending on bailouts for state-owned enterprises, such as Eskom and SAA, and a growing public service wage bill.

As noted by the minister, the public-service wage bill, between 2007 and 2019, has increased by 66% adjusted for inflation. And, according to Treasury, 29,000 public servants will earn R1-million or more in annual salaries in 2019. In total, the wage bill accounts for 34% of the total...

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