Picture: THE HERALD/MIKE HOLMES
The other outcome, requiring a bold new economic trajectory, promises a stable equilibrium where inequality reducing policies, a stimulus together with structural reforms, are implemented to increase potential growth and investment; rising growth and reduced inequality leads to job creation, reduced poverty and sustainable public finances. This is the path SA can now choose.
“The broad government deficit continues to be large -8% of GDP which is largely driven by the yawning interest bill. In a vicious cycle, fears about the fiscal outlook — partially driven by the interest bill — keeps the yield on long-term SA treasuries at elevated levels . Real yields must come lower and/or real growth must increase, or else SA is headed for a debt crisis,” says Dhawan.
Accommodative monetary policies have been adopted , fiscal stimulus measures have targeted the most vulnerable segments of society to dampen the severity of the recession, and credit easing policies implemented to prevent the bankruptcy of illiquid but solvent firms and households. This unemployment relief grant may be paid for in part by some government saving measures and tax reforms such as removing deductions targeted at higher-income tax payers, but in the short term will require about R100bn of additional debt on the government’s balance sheet.
Second, a sizeable small and medium business hybrid equity funding scheme, plus grants for SMEs, should be funded by the National Treasury, in partnership with financial institutions, to help recapitalise businesses. This injection of risk-sharing equity into qualifying businesses would be aimed at stimulating investment and job creation.
• Bankable infrastructure projects identified for private public partnerships, including port and rail infrastructure concessions should be fast tracked for competitive bidding; Such medium-term structural reforms, working together with immediate stimulus and relief measures described above, can provide a sustained sequence of economic reforms that over time produces a harmonious cycle of immediate poverty relief, job creation and a conducive environment for investment and growth, which in combination can reverse the tide on mounting debt.
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