South Africa’s economy is facing crisis risks (Part 3)

Economists and public finance experts have not yet reached a consensus on the specific acceptable debt threshold.

However, it is clear that the higher the ratio of public debt to the size of the economy, the greater the risk. This is especially true when economic growth is lackluster, and this low level of growth has taken place in South Africa over the past several years. Recent developments have made the situation even more gloomy.

In the 2019 budget estimate, the South African State Treasury indicated that it may be forced to exceed the spending ceiling for the first time to provide the National Power Company of Eskom with a $1.5 billion bailout year for the next 10 years. The above measure should be implemented even when other plans have been implemented, including job cuts in public services and additional tax measures.

Since then, the National Energy Regulatory Authority (NERSA) has allowed Eskom to enjoy lower than expected tax increases. The South African government has also proposed additional support to Eskom more than 4 billion USD in the next 2 years.

The South African government does not seem to be able to cut such large sums in other regions to make up for this. Despite the money being poured into Eskom, there has not been any indication that the company’s overall plan to stabilize its finances has been given.

Meanwhile, South Africa is still facing many other financial risks. Economic growth and job creation are negligible and both are below the population growth. This means a higher unemployment rate and a decrease in per capita income. Faced with the Eskom crisis in both public finance and economic growth, the only way to rise is to ensure social consensus.

President Ramaphosa has his own weapons to achieve a “social agreement” of this type but the head of the South African Government acts too slowly. This may be partly due to the constant factional battle at the ANC and the unprecedented attack on President Ramaphosa and his close allies such as Public Business Minister Pravin Gordhan. This country inspection is underway.