This is the third in a series of articles by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis. In the last article, he showed how the real value of public services has declined over the past decade, and how substantial off-budget allocations to state-owned enterprises have come at a cost to the poor. In this article, he examines the extent of South Africa’s fiscal crisis as the country struggles to recover from the impact of Covid-19. He argues that the recent budget proposes a path of consolidation that will erode core public services further. It will also be difficult to accelerate the pace of economic growth in the face of a large and sustained negative fiscal impulse. But even if the consolidation achieves its targets, it is unlikely to alleviate the debt burden. Rising interest payments mean that rent is drained from the proceeds of production, with implications for economic growth and the distribution of national income. Without an acceleration in nominal GDP, it is difficult to see how South Africa will avoid a period of fiscal and financial disorder.
At the start of the democratic project, South Africa hoped for a “fiscal renaissance”. After a brief period of consolidation, social spending rose, as did remuneration for public servants and expenditure on infrastructure. By the early 2000s, revenue was buoyant, the debt-to-GDP ratio was at historic lows, and the budget balance moved into surplus. But by the second decade of the millennium, growth faltered. And at the very moment that conditions demanded fiscal adjustment, government policy became increasingly incoherent.