Macroeconomic aspects

Finance and businesses in the time of Corona

Philippe Burger, University of the Free State on 31 March 2020
Reads 5,329

The lockdown and physical distancing measures of government impact small and medium-sized companies severely as they lack the financial reserves to survive the crisis. This article proposes immediate financial measures to support companies, large and small, to ensure that a liquidity crisis does not turn into a solvency crisis, putting many companies out of business – and causing large-scale unemployment. On a macroeconomic level the objective is to protect income and jobs by slowing down the rate at which aggregate supply and demand contract.

Soaring deficits and debt II: Budget 2020 and a looming debt trap?

Philippe Burger, University of the Free State on 12 March 2020
Reads 2,148

The projected increase in the debt-to-GDP ratio is set to occur notwithstanding plans to cut the projected increase in government’s salary bill. If government does not overcome labour union resistance to cuts, the debt burden will increase even more. The mounting public debt and government’s apparent inability to reign it in, raises the question whether South Africa finds itself in a debt trap, and if not, what can be done to escape such a trap.

Soaring deficits and debt: restoring sustainability amidst low economic growth

Philippe Burger, University of the Free State on 24 February 2020
Reads 3,946

The debt burden of the national government has steadily increased from 27% in 2007. It is heading towards 70% in 2022/3 if this trajectory is not turned around. Further growth in the debt-to-GDP ratio must at least be halted. Different scenarios show this would require a cut in government expenditure of 2% to 3% of GDP (roughly R100 to R150 billion), phased in over the medium term. This means there is no room for a stimulating fiscal policy.

Creating jobs, reducing poverty III: Barriers to entry and growth in the informal sector – and business cycle vulnerabilities

Frederick Fourie, REDI3x3, based at SALDRU, University of Cape Town on 6 August 2018
Reads 8,129

In this extract from a new REDI3x3 book, the focus is on the constraints faced by informal enterprises in trying to enter, survive, grow, or increase employment. A lower tier of ‘survivalist’ enterprises and an upper tier of ‘growth-oriented’ enterprises is apparent, with barriers limiting entry into the upper tier. Selling into higher-value or formal-sector markets and value chains encounter significant structural barriers. And the sector is particularly vulnerable to severe cyclical downturns.

What makes the rand so volatile: global or home-made factors?

Nasha Mavee, International Monetary Fund on 30 March 2017
Reads 13,318

Exchange-rate volatility can complicate decisions concerning trade and investment and constrain a country’s economic growth. Understanding what contributes to a currency’s volatility is an important first step in assessing whether economic policy can reduce this volatility. For South Africa, changes in global commodity prices and financial-market risk perceptions drive most of the rand’s volatility. However, local political uncertainty also emerges as a significant source of volatility. More policy and political predictability could help to smooth the rand’s volatility.

Have real wages fallen behind or increased out of line with productivity? A macroeconomic perspective

Philippe Burger, University of the Free State on 20 January 2016
Reads 8,214

Macroeconomic data on wages and productivity suggest that there has not been any constant tendency for real wages either to fall behind or increase out of line with increases in productivity. Upward shifts have affected real wages sporadically, but have subsequently been offset by downward shifts, leaving a one-to-one long-run relationship between real wages and productivity. This is contrary to the conventional wisdom in both the labour union and business worlds.

How effective is VAT zero rating as a pro-poor policy?

Ada Jansen, Stellenbosch University on 20 July 2015
Reads 13,480

In most countries with VAT, certain goods and services are zero rated to alleviate the tax burden on the poor. However, this may not be the most cost-effective way of helping the poor. We investigate the appropriateness of the products currently zero rated and the impact of this on the poor, the implications for tax revenue were it to be removed, and the contribution to poverty relief of zero rating compared to targeted social transfers.

The Budget’s fiscal stance: The non-cyclical element may be a cause for concern

Wynnona Steyn, South African Revenue Service on 16 April 2013
Reads 19,037

It is estimated that less than half of the present main budget deficit of 5.7% is explained by cyclical factors. The remainder reflects a non-cyclical, structural component of the deficit. The increase in the structural budget deficit since 2008 may constrain the ability of government to sustain its present revenue and expenditure policies. An in-depth understanding of the structural component of the fiscal position as opposed to its cyclical element is important for sustainable long-term government financing and planning.

The Budget: both the fiscal stance and ‘structural stance’ are sound

Kuben Naidoo, National Treasury on 25 March 2013
Reads 9,308

Many economists have argued that the government’s fiscal stance in the recent budget is verging on the risky. This article argues that the fiscal stance is both correct and prudent. In addition, the article puts the budget in a broader developmental context, highlighting its contribution to long-term growth and development and to tackling poverty and inequality.

The National Development Plan and exports as a catalyst to generate employment growth: Can it work?

Philippe Burger, University of the Free State on 20 November 2012
Reads 10,535

Small and medium-sized firms hold the potential to absorb most of the unemployed in South Africa. In this the NDP may be correct. However, the NDP may not be correct in arguing that exports can be the main catalyst of the growth the country needs to address poverty and employment. Several factors hinder such a strategy. A more domestically-focused policy aimed at production (and services) for local consumption might bear more fruit.