SOUTH AFRICA:The biggest risks to South Africa’s economy right now

  • 10 March 2022 / News / 484 / Fares RAHAHLIA

SOUTH AFRICA:The biggest risks to South Africa’s economy right now

The largest risk to the recovery in South Africa’s public finances is a deterioration in GDP growth, say National Treasury officials.

In a post-Budget presentation to parliament on Thursday (24 February), Treasury said that higher‐than‐expected global inflation could lead to higher global interest rates, affecting debt‐service costs and the exchange rate.

Other significant risks include:

  • The weak financial position of several state‐owned companies that rely on government support to operate.
  • A public‐service wage agreement exceeding the rate of growth of the compensation budget. An adverse decision by the Constitutional Court in the case relating to the 2018 wage agreement could significantly increase compensation costs.
  • Additional spending pressures from new spending programmes or the realisation of contingent liabilities would affect the sustainability of the public finances, and could require spending cuts elsewhere.
  • The government’s debt redemptions over the next five years will average about R150 billion per year. Additional debt financing could increase refinancing risk and result in higher associated costs.

“Global uncertainties and an uneven domestic recovery will weigh on the economic outlook over the medium term. While the outlook for 2022 has been revised upward, persistent structural constraints continue to inhibit the pace of the recovery from Covid‐19 and longer‐term growth,” it said.

“Since the 2021 Medium Term Budget Policy Statement (MTBPS), government’s fiscal position has improved as a result of higher‐than‐anticipated revenue collection. This revenue will be used to alleviate short‐term spending pressures and reduce the budget deficit.”

Treasury said the government remains committed to stabilising the debt‐to‐GDP ratio by ensuring that spending is prudent and sustainable.

It added that it will continue to reprioritise, reallocate and review spending to meet policy priorities and improve efficiency.

“Government faces large spending pressures, including the risk of higher‐than‐budgeted public‐service wages, demands for additional funding from financially distressed state‐owned companies, and calls for permanent increases in spending that exceed available resources.

“It is working on a sustainable long‐term approach to social protection consistent with government’s broad development mandate and the need to ensure affordability.

source: businesstech

See too