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Position: Senior Researcher, Poverty and Inequality Initiative

Institution: University of Cape Town

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Ariane De Lannoy is a sociologist and senior researcher, coordinating the work programme on Youth within the Poverty and Inequality Initiative. Ariane holds Masters degrees in languages and international politics from the Universities of Ghent and Antwerp (Belgium) and a PhD in Sociology from the University of Cape Town (South Africa). Her research focuses on youth in rapidly changing urban environments, using Mixed Method and a Qualitative approaches. She is especially interested in youth transitions and decision-making in the complex context of post-apartheid South Africa. In collaboration with Katherine S. Newman, current Provost at the University of Massachusetts, Amherst (USA) she worked on After Freedom: The Rise of the Post-Apartheid Generation in Democratic South Africa, an ethnographic study investigating the social experience and political expectations of men and women in their late twenties. In 2015, De Lannoy was the lead editor of the multidisciplinary Child Gauge, which focused on Youth and the Intergenerational Transmission of Poverty.

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Editor's Corner

The weight of debt

The third-quarter results of the Quarterly Labour Force Survey, released by StatsSA last month, show a worrying rise in the unemployment rate from 34,4% in the second quarter to 34,9%. Taking into account discouraged workseekers, it means almost half the population who can work (46,6%) are not in employment. This is the highest figure recorded, notes StatsSA, since the start of the QLFS in 2008.

The increasing pressures this puts on the poor – as well as on state resources – underlies the often intense policy debates about how to both alleviate poverty and promote job-creating growth.

In the last few editions we have focused on questions of fiscal policy, as well as the pressing need for social relief grants particularly in the wake of the Covid19 pandemic. As Michael Sachs pointed out in a recent edition of Econ3x3 (http://www.econ3x3.org/node/465), notwithstanding a slightly improved fiscal position, the country’s finances remain under serious pressure.

In last week’s edition, we aired the arguments of the Institute for Economic Justice for a Universal Basic Income Grant. Nathan Taylor, writing on behalf of the IEJ argued this was not only necessary to relieve dire poverty (some 55% of South Africans are affected by poverty with half of those living below the Food Poverty Line), but also possible with a “clawback” mechanism implemented through the tax system to finance it. (http://www.econ3x3.org/node/466)

In this edition, we feature an article by economist Thabi Leoka, who warns us – as has Sachs – of the hazards of our increasing burden of debt, particularly when growth is so low. She writes that the rising debt to GDP ratio threatens economic growth and job creation, as well as the sustainability of the social wage.

Fiscal consolidation, as outlined in the Medium Term Budget Policy Statement and which Leoka distinguishes from stringent austerity measures, is necessary to get the country back on a sustainable track. She writes that it is “nonsensical” to argue that debt is not a problem. History tells us otherwise. In the past decade, public debt has trebled as a percentage of GDP, and South Africa’s growth rate has averaged about 1% a year. Its unemployment rate increased, as did inequality. In the decade prior, when public debt fell to about 20% of GDP (compared with the 74% where it hovers today), GDP growth averaged 4%, the poverty rate fell from about 48% to about 36% and unemployment fell from about 30% to about 22%. Fiscal space allowed South Africa to expand the social safety net significantly, including extending unemployment insurance to domestic and farm workers.

It is true that at that time there was stronger global growth and a longer commodity boom that benefitted South Africa but nonetheless the economy was in much better shape in the early 2000s than it is today.

Treasury projects growth at just under one percent in the next three years. To increase debt when the growth rate is so low is to court a fiscal crisis, warns Leoka. Debt service costs – what we pay in interest – are the second highest line item in the Budget, higher than policing, health, and social development.

In 1997, former finance minister, Trevor Manuel, pointed out to his own party, the ANC, that there was a mere R1 billion difference between expenditure on education and on interest. Without an intervention, he warned’, “we will be spending more on yesterday than today.”

Today, nearly 25 years later, Leoka’s warning is more urgent: incurring more debt, she argues, could tip the country into a fiscal crisis. And then the reforms promised in the MTBPS, which she argues are necessary to boost economic and investor confidence so that jobs can be created and the social wage sustained, are in danger.

Her article contributes important texture to the essential policy issues we must engage with about how to balance effective social relief with fiscal sustainability.

Pippa Green

1 December, 2021

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Working Papers from the REDI3x3 project are available HERE

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The three Rs...

READ, WRITE & REASON

Econ3x3 provides a platform to promote robust economic policy discourse in South Africa. The complexity, but also sterility of public debate on many policy issues, demands that knowledgeable individuals engage in robust debate. This can inform other individuals and policymakers on issues that they deal with in day-to-day policy making or policy analysis.

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Articles

The weight of debt

Working Papers from the REDI3x3 project are available HERE

READ, WRITE & REASON

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