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South Africa’s financial position

Sameera Casmod |
18 September 2023 | 13:06 SAST
2-min read

Picture: News24

South Africa is facing financial challenges. These are indicated by cabinet rejections of budget-cut proposals and high levels of debt.  Wits Professor Jannie Rossouw and Citadel’s chief economist Maarten Ackerman discussed the country’s fiscal position in an interview on Radio Islam International.

Professor Rossouw expressed concern about South Africa’s fiscal health. He highlighted that since 2014, the nation has witnessed low economic growth, hovering around 1% annually. This growth, coupled with a population growing at 1.5% per annum, has created unsustainable demands on the government’s resources.

Ackerman corroborated the view about South Africa’s economic challenges, emphasising that the previous Minister of Finance had warned about a fiscal cliff. Ackerman noted that South Africa had narrowly avoided this predicament a few years ago, thanks to a strong commodity cycle that boosted tax revenues. However, this financial tailwind has since dissipated, leaving the country precariously perched on the precipice.

Ackerman pointed to an indicator of distress: the government’s daily need to borrow approximately R2 billion to balance the budget. This borrowing is, in his words, “unsustainable,” raising doubts about the nation’s ability to continue at this pace without consequences.

When discussing why the government might not be openly acknowledging the crisis, Professor Rossouw touched on the political implications, particularly in an election year. Ackerman concurred, mentioning the government’s reluctance to admit mistakes, especially related to vanity projects that have drained fiscal resources.

Moreover, Ackerman noted that a significant portion of the borrowed capital comes from South African pension funds and retirement funds. Thus, a fiscal crisis could jeopardise the financial well-being of countless South Africans.

When it comes to solutions, Ackerman outlined the dilemma faced by the government. Increasing taxes, such as VAT, is a viable option, but it may prove highly unpopular in an election year. Ackerman emphasised that VAT could provide an immediate boost to revenue, as opposed to other taxes like capital gains or dividends, which may have uncertain outcomes.

Professor Rossouw also raised the possibility of avoiding tax relief adjustments for inflation, effectively increasing taxes on personal income without overtly raising tax rates.

Elections, while crucial for a democratic society, come at a cost. Both experts acknowledged that conducting free and fair elections is vital for South Africa’s future. However, they also recognised the financial burden this places on the nation, particularly during a financial crisis.

Regarding alternative economic policies, both experts discussed various parties’ proposals. Ackerman stressed that the effectiveness of any plan hinges on execution, stating that South Africa has often fallen short in this regard. He suggested that while the current economic plan has potential, success ultimately depends on the political will to implement it effectively.

Listen to the full interview on Sabaahul Muslim with Moulana Sulaimaan Ravat here.


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