Submission on South Africa's Fiscal Policy Choices

Like National Treasury, CDE believes that SA’s public finances are not sustainable. The country has a large, persistent deficit which emerged after 2009, and which has resulted in a rapid increase in debt. This, ultimately, reflects government’s inability or unwillingness to live within the country’s means as the rate of economic growth has declined from the historical highs of the 2000s to something less than population growth in recent years. The fact that SA’s public finances are unsustainable is the principal source of sovereign risk in the economy, and the reason that interest rates are far higher in SA than they are in most of the rest of the world. These reflect, ultimately, the extent to which government’s creditors are increasingly concerned about its creditworthiness and about the economy’s capacity to generate the resources needed to ensure full repayment of loans that have been made to government. That, in turn, means that all borrowers in the economy pay unusually high interest rates, slowing investment and growth. There are only two ways to address the unsustainable character of our public finances: accelerated fiscal consolidation and faster economic growth.