South Africa’s Central Banker Warns of Unsustainable Debt Spiral

South Africa’s government debt could become unsustainable and the country could default if lawmakers heed a call by a group of economists to reject the supplementary budget, according to Kuben Naidoo, a deputy governor at the central bank.

“South Africa is close to an unsustainable debt spiral,” Naidoo said in an opinion piece published by the Business Day newspaper. “Yes, we must spend more today, but as part of our social compact we have to agree that we need to reduce our borrowings in the two- to three-year period ahead.”

Naidoo, a former head of the National Treasury budget office, was responding to an open letter by a group of economists last week calling on lawmakers to reject the supplementary budget presented by Finance Minister Tito Mboweni on June 24 and to approve plans to ramp up spending. The fiscal adjustments were necessary to redirect some expenditure for the 500 billion-rand ($29 billion) virus support plan President Cyril Ramaphosa announced in April, and also to account for a sharp drop in tax revenues due to lockdown regulations.

Mboweni said the Cabinet has agreed to target a primary budget surplus by 2023-24 and that the ratio of government debt to gross domestic product will stabilize in that financial year.

Read more:

Failure to support the budget will weaken the country’s fight against Covid-19, prolong the recession that’s already lasted three quarters and delay the economic recovery, Naidoo said. The consolidated budget balance will swell to 15.7% of GDP, or 762 billion rand, this year. That compares with total savings by households and companies of about 850 billion rand, he said.

“It is not sustainable,” he said. “If we want to grow the economy and restore the jobs being lost, we have to free up the resources for private investment to return.”

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.