By Bonga Makhanya
MANY economists, politicians social commentators and quite frankly literally everyone have noted with growing concern the growing borrowing costs and rising debt levels of the South African government, which has now been heightened by the latest approved loan from the World Bank. I, however, hold a slightly different view.
South Africa has a 34.9 percent unemployment rate and most worryingly a 64 percent youth unemployment rate, where 50 percent of the adult population live in poverty and inequality is the highest in the world. It is in that context that the South African Treasury finds itself, where it has excess demand for social services and social programmes to deal with deep structural economic challenges. Where its revenue collection falls short of the demand, it turns to domestic and international lending institutions to finance the shortfall through debt financing.
Although at a face level or nominal level, the rising debt levels are concerning, debt in itself as a fiscal instrument to finance fiscal spending is not really an uncommon or bad instrument if used responsibly. What is a cause for concern and what should be of interest to South Africans and particularly young South Africans, is which social programmes will the debt borrowed from the World Bank be used for and how will it assist in dealing with deep structural economic challenges.
There is a growing idea that South Africa is borrowing too much and we are headed for a debt crisis and often what is cited is the nominal debt-GDP (gross domestic product) ratio, which sits at 79 percent. It is a common fiscal practice for governments across the world to finance their spending through the use of credit from international lending institutions.
Comparatively emerging markets across the world, including Argentina, Singapore, Brazil, Mexico and many others, have much higher debt-to-GDP ratios and therefore quite evidently our levels of spending and borrowing are in line with global trends. There is also an idea that South Africa has a volatile currency and borrowing from international institutions might have devastating effects on our fiscus as it would result in much higher repayments when the rand loses value (potentially).
However, that is simply sensationalism and academic dishonesty because South Africa in the current fiscal year has borrowing requirements of R630 billion of which R510bn will be domestic and the balance from the international global markets and, therefore, the new added debt poses no real risk to the fiscal sovereignty of South Africa as the bulk of our debt is rand-denominated which will help in mitigating exchange rate volatility and fluctuations.
Furthermore the idea that the conditions of the loan come with strict fiscal reforms which compromises our sovereignty are also not entirely true as South Africa is a member country to the World Bank and many other global institutions and is somewhat entitled to this relief package, and Treasury has announced that they have attached no conditions such as taking our ports or infrastructure if we fail to make payment (which has been flying around). Therefore the loan in and of itself is not the issue. What is the issue is how Treasury plans to spend the loan.
The national government must deploy resources to support the real economy in dealing with deep structural economic challenges such as increased stimulus packages that will drive real infrastructure development that enables job creation from the private sector as well as public sector job placement programmes such as the YES Programme, the implementation of the basic income grant to support the poor and working class, as well increased funding for skills development and grant funding for small, medium and micro enterprises.
The National Treasury has announced that it plans to deploy these new financial resources to finance social programmes as well as to strengthen the government’s Covid-19 response plans. However, the announcement lacks a clear fiscal spending plan. We agree that debt is not an inherently bad instrument, but debt used to finance arbitrary programmes that don’t result in growth is -- such as bailing out state-owned enterprises that are ailing due to incompetence and corruption. The Treasury, as with all of its fiscal plans, must prioritise upskilling and capacitating the youth of south Africa, who remain inactive economic agents.
The detailed fiscal plan of how this R11.5bn will be spent must include real stimulus packages on the planned programmes so as to avoid the money being spent on unnecessary items and benefiting the few.
That plan must include how many jobs will come out of the spending and real economic growth as a result of the multiplier effects created by the cash injection in the real economy, as well as supporting and capacitating strategic sectors by providing enabling infrastructure and economic incentives to drive investments.
It is concerning, however, as the reality is that the R11.5bn will not trickle down to the real economy where the lives of millions of ordinary people will improve through infrastructure development projects that create jobs.
The government, time and time again, has shown that it lacks the political will to implement loose fiscal policy and progressive creative programmes that will meaningfully benefit the lives of ordinary South Africans because it has sufficient resources. The student debt total is estimated to be around R14bn, latest estimates of the cost of free high education are around R40bn to R60bn annually. The basic income grant at R350 per month currently costs R45bn per annum. The most worrying sign of the lack of political is the under-funding of the National Youth Development Agency, which is the only agency with a mandate to service the interests of ordinary young people. It is given a budget of R542 million yet is expected to service 18 million young people, of which 3.3 million are not in employment, education or training.
It is clear that the government’s fiscal plans are not youth-centred and clear that it can afford to finance many of the mentioned programmes but it lacks the political will.
Any rand that is spent must centre on the socio-economic development of young people who remain unemployed, poor and unskilled due to a lack of appropriate fiscal resource allocation to service their interests. Again finally, South Africa must drive an expansionary fiscal policy and get rid of the tired and timid contractionary measures, to take bold decisive steps to drive domestic demand and ramp up investment and real economic growth
Bonga Makhanya is the founder and executive chairperson of the South African Youth Economic Council.
*The views expressed here are not necessarily those of IOL or of title sites.
BUSINESS REPORT ONLINE