A new report by the Organisation for Economic Co-operation and Development outlines four scenarios for South Africa’s economy and the handling of public debt following the Covid-19 pandemic.
The scenarios form part of the group’s wider analysis of the post-Covid state of the country, which calls for an overhaul of the tax regime to fund economic-growth enhancing reforms and reduce inequality.
South Africa’s public debt to GDP ratio skyrocketed in 2020 in the wake of the Covid-19 pandemic, like many other global economies. The cost of servicing this debt remains a significant burden on the fiscus, representing 4.3% of GDP and around 17.3 of total government revenue. This happens in the context of the government’s contingent liabilities representing 20% of GDP in 2021. The scenario extends the short-run economic outlook for the country, with a growth rate of 1.5% from 2024 and a gradual improvement of the primary balance to 0.5% of GDP from 2023.
It includes not buckling to higher wage demands and also steering away from more bailouts to State Owned Enterprises . Budget would be directed to projects, initiatives and projects that grow the economy.Best-case scenario – complete reform The complete reform scenario takes into account the effects of implementing structural reforms that would increase potential growth to 2.5% from 2024 and tax reform that would increase the primary surplus to 1% of GDP from 2024.
“Almost half the reduction in spending comes from cutting the wage bill, which represented 34% of government spending in 2020. Government wages have been increasing by an average of 11% over the last decade,” it said.
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