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South Africa may be driven to the International Monetary Fund if its rising debt goes unchecked without the buffer of savings or new sources of tax revenue, the country’s National Planning Commission has said.
Debt is increasing against a backdrop of weak economic growth and higher joblessness, a diminishing global-market presence and weakening investments, the NPC, which crafted the National Development Plan, the country’s economic blueprint, said in a September 14 report. Higher debt could also reduce commitments to social spending, which can undermine social stability in Africa’s most-industrialised economy.
'We have stalled again'
“The bad news is that we have stalled once again. The good news is that it is within our power to fix it,” it said. “It will not be possible to continue on this path. We will need to restore the country to a growth path with higher tax-collection rates, public-sector efficiency and improved service delivery per rand spent.”
The economy hasn’t expanded at more than 2% annually since 2013 and fell into a recession in the second quarter. More than one in four people in the workforce are unemployed and policy uncertainty has made companies reticent to invest in industries such as mining.
President Cyril Ramaphosa unveiled plans to revive the economy and create jobs last month. Before he re-entered politics, Ramaphosa was the deputy chairman of the NPC when it presented a plan in 2011 to cut unemployment to 6% by 2030, with economic growth of 5.4%.
Debt projected to peak
In the new report, the commission said reducing the 27% unemployment rate to 21% by 2030 would require a gross domestic product expansion rate of about 3%. The economy will probably grow 0.7% this year, according to the Reserve Bank.
South Africa’s gross debt is projected to peak at 56.2% of GDP in 2023 and the cost of servicing this is the third-fastest growing expense in the budget, according to the National Treasury.
“South Africa has limited space to maneuvre, taking into consideration that the country is currently trapped in a low growth path, which implies less revenue being collected in the future,” the commission said.
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