In financial circles, there is much talk about the danger of a fiscal crisis, and this topic will be the looming shadow over the Medium-Term Budget Policy Statement. But how will South Africans know whether or not we are in a fiscal crisis?
One absolutely undeniable definition of a fiscal crisis is when a country can't honour its debt obligations. South Africa is nowhere near that point, but Zambia, for example, has just made this declaration and is in default. Zimbabwe reached that point decades ago and has never emerged.
Apartheid South Africa hit that point too in the mid-1980s, and it's pretty cataclysmic. Suddenly, the government loses control over the finances of the state, and lenders hold the whip-hand - and it's often exactly that, a whip.
The formal definition of a fiscal crisis is when the state can't pay for a deficit created by the difference between its tax revenue and its expenditure. But when do you actually reach that point?
A fiscal crisis is often the result of another gloomy notion: a debt trap. This is where it becomes impossible to contain the growth of government debt. Often this is because as debt is accumulated, the cost...