The National Treasury offices in Pretoria. Picture: RUSSELL ROBERTS
This was a co-ordinated campaign to persuade the government to ignore previous commitments to fiscal consolidation and commit to providing a basic income grant to much of the population. While there may be room to debate when the debt ratio is too high, there is no disputing the mathematics. When the rate of growth of the economy is lower than the rate of interest the government pays on its debt , the debt ratio will continue to climb until non-interest spending is lower than tax revenues.
The Treasury understands this. However, its critics fail to recognise that SA’s position differs fundamentally from that of most of the world, where growth rates are higher than the effective interest rate on government debt. Proponents of a borrow-to-grow strategy dramatically underestimate how demanding these two conditions are in a context in which the differential between GDP growth and yields on the government’s 10-year bonds, the level of which is set in the market and reflects the riskiness and sustainability of public debt, averaged nearly four percentage points in the three yearsWithout setting it out as explicitly as this, the medium-term budget policy statement recognised the mathematical impossibility of...
The rise in debt thus has to be understood not “just” as a weakening of public finances, but as a reflection and symptom of poor governance. It is therefore unsurprising that the issuance of new debt has been accompanied by a large and rising risk premium, one that reflects concern that the decisions that are needed to drive growth or contain debt may never be taken.
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