Africa's Best Read
South Africa’s economy has performed dismally since its miracle transition to democracy. From 1994 to 2022, GDP per capita, an imperfect measure of average living standards, increased by 22%. By comparison, over the same period, GDP per capita growth in local currencies was 783% in China, 337% in Vietnam, 315% in Ethiopia, 285% in India and 216% in Poland, according to the World Bank. In South Africa GDP per capita in 2022 was lower than it was in 2007.
We cannot continue like this. But the two most important institutions in the economy do not care about unemployment, poverty and inequality. The treasury cares only about debt. The South African Reserve Bank cares only about inflation. The IEJ has forecast a revenue shortfall of R52.4 billion and a spending overrun of R67.9 billion to R123 billion. This will result in a budget deficit of 6.3% of GDP. The 2023 budget forecasted a deficit of 3.9% of GDP. The IEJ says the revenue shortfall is within historic norms and that the spending overrun is comparable to other years.
This resulted in revenue shortfalls, especially after the trend GDP growth rate collapsed from 2014 as austerity policies began to bite. From 2014-15 to 2019-20 there were revenue shortfalls of R248.4 billion — R9.9 billion in 2014-15, R14.4 billion in 2015-16, R37.1 billion in 2016-17, R55.8 billion in 2017-18, R62.2 billion in 2018-19 and R69 billion in 2019-20.
Second, it assumed that the R36 billion a year social relief of distress grant that is paid to about eight million people would come to an end in March 2024 when the treasury knows that it cannot be stopped two months before an election. The treasury does not understand Keynesian economics 101. A national budget does not operate like a household budget. The public sector, broadly defined to include state-owned enterprises and other agencies, probably accounts for 40% of GDP.
There is no reason the Reserve Bank cannot fund government spending , lend to the public sector on favourable terms or intervene in the bond market for an extended period and determine the cost of government borrowing .
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