South Africa’s government is running out of money – IRR

(Click here to read "The scary, sensational and surprising future of South Africa" in which Frans Cronje of the SA Institute of Race Relations discusses what South Africa might look like in 2024.)

South Africa is heading for a fiscal cliff, according to SA Institute of Race Relations (IRR) CEO Frans Cronjé.

In layman’s terms; we’re running out of money.

Revenue is down; expenditure is rising

“Ten years ago government revenue as a percentage of GDP sat around 23 percent,” says Cronjé. “It’s now well past 28 percent and, by next year, I expect it at just below 30 percent.”

A decade ago government expenditure as a percentage of GDP was around 23 percent, leading to a deficit of around two to three percent. “That number is now projected to hit around 34 percent which could see the deficit surpass five percent.

“These numbers are unsustainable for South Africa,” warns Cronjé.

3 ways to step back from the brink

There are, according to Cronjé, three ways for South Africa to get out of this mess:

1. Spend less

This option is, politically, very tough to implement. About 60 percent of the national budget goes to social spending and cutting this might be political suicide.

2. Borrow more

When Nelson Mandela became president South Africa’s government debt-to-GDP was around 50 percent. A decade after that it had improved to 27 percent and remained that low until the global financial crisis brought it back to around 50 percent.

If government continues borrowing at this rate it’ll take less than four or five years before it becomes unable to repay.

3. Faster economic growth

If we achieve rapid economic growth revenues will increase which will cut the deficit.

South Africa’s acute electricity shortage, however, means South Africa is unable to grow itself out of trouble.

“Treasury understands the severity of the problem,” reckons Cronjé. “It’s the rest of Cabinet I’m worried about.

“This fiscal cliff will be the definitive force shaping economic policy in South Africa in the next two or three years.”

Listen to the audio for more detail.

(Click here to read "The scary, sensational and surprising future of South Africa" in which Frans Cronje of the SA Institute of Race Relations discusses what South Africa might look like in 2024.)

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