Budget reform is SA’s economic roadblock

The biggest hurdle facing South Africa’s economic development is budget reform.

This is according to Konrad Reuss, managing director of S&P Global for South Africa and sub-Saharan Africa.

“The roadblock for South Africa that’s going to be the painful one is restructuring and reforming the budget,” he said at the Deloitte Gearing for Growth event in Sandton, Johannesburg, this week.

The country was exactly where Brazil seemed to have been two years ago, with political changes, euphoria and a number of policy changes, he said.

In the same way pension reform in Brazil became an obstacle, the country might find itself stuck at reforming the budget.

“At some point, fiscal consolidation has to happen to get the fiscal side and the debt trajectory on a sustainable path again. Part of the fiscal consolidation will have to be a budget reform that will look at the quality of spending,” he said.

Too much focus was being placed on the country’s investment grade rating.

“My impression is there is an over-emphasis on this investment grade story.”

Placing excessive emphasis on getting back to investment grade quickly, as opposed to stopping the decline, may lead to the wrong policy choices being made.

In comparison with other crises in Asian countries, South Africa was in a state of “slow burn”.

“Sometimes it feels like let’s rather have a proper, deep crisis so that we know what we have to tackle and the economists would know what tools to apply. Here we have this slow burn throughout the economy,” he said.

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