James Rycroft

Position: Independent consultant

Institution: Sihlanganisa Inclusion

Expertise: Transaction advisory and land reform

Consultant working in the land reform and transaction advisory space within South African commercial agriculture. Key focus sectors are forestry, fruit and sugarcane.

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Innovative joint ventures can boost agricultural production and promote agrarian transformation

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Editor's Corner

Note from the Editor

Behind South Africa's fiscal crisis

In this week’s Econ3x3, we publish the fourth and last part of a series by Michael Sachs on South Africa’s fiscal crisis. This is an edited version of Sachs’ long paper prepared for the Public Economy Project based at Wits University’s Southern Centre for Inequality Studies (www.wits.ac.za/scis).

We publish in the aftermath of the violence in two of the most populous provinces in the country - described by President Cyril Ramaphosa as an attempted insurrection, but also underpinned by long-entrenched poverty exacerbated by the lockdowns.

The violence has also come at a time when, as Sachs explains in Part 2, the value of public services has been steadily eroded. Although compensation for public employees continued to rise above inflation, expenditure was contained in other ways such as neglecting maintenance and slowing hiring. The latter has meant there are fewer teachers, healthcare workers and police personnel, proportionately, serving the population.

Moreover, substantial allocations to flailing State-Owned Enterprises, has come at a cost to the poor.

In Part 4, Sachs overviews his main arguments, and looks at possible policy solutions to the crisis. Two decades ago, he writes, "South Africa was confident about its economic future. Public expenditure expanded to deliver on social objectives that had been deferred at the outset of the democratic transition. It included a permanent expansion of core public services... an increase in pro-poor fiscal transfers, significant real improvements in the remuneration of public employees and a surge in public infrastructure investment."

In spite of an ambitious expenditure program, taxes were lowered. However, South Africa's economic expansion stalled because of shifts in the global economy. But at exactly the time that the country needed coherent policymaking and strong institutions, "the domestic policy and governance landscape changed." Following the 2007 Polokwane of the ANC, which brought the Zuma administration to power, policy making shifted from "constitutional structures of government to opaque and diffuse processes within the ANC. Government committed itself to further expansions of public services but did not agree on a fiscal programme to support these aspirations."

Sachs’ careful review of fiscal data and economic policy over the past two decades allows him to identify why we seem to have become trapped in our current fiscal crisis: a high debt-to-GDP ratio, low growth, rising unemployment, and extreme poverty in parts in spite of social spending. On top of these entrenched structural weaknesses, the country has been dealt a devastating blow by the Covid-19 pandemic and lockdowns.

In this part of his series, Sachs examines possible policy solutions, including the role of the Reserve Bank, compulsory financing, and public infrastructure investment.

South Africa’s crisis, seen through the lens of fiscal analysis, seems dire. But we hope this series will contribute, in part, to naming and explaining its dimensions to help policymakers develop the tools to deal with it.

Pippa Green

July 21, 2021

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Working Papers from the REDI3x3 project are available HERE

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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

Note from the Editor

Behind South Africa's fiscal crisis

Working Papers from the REDI3x3 project are available HERE

READ, WRITE & REASON

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