Carol Paton Editor at Large
Picture: ISTOCK
Picture: ISTOCK

Government must rein in debt and restore fiscal stability by cutting its spending if it is to stand a chance of restoring growth to the economy, says a new policy paper by the Centre for Development Enterprise (CDE).

In a detailed examination of SA’s public finances, the report titled “Running out of Road” says that SA’s debt has grown so enormously over the past decade that economic growth has been compromised as government resources are increasingly consumed by debt service costs. While the growth in the debt burden is partly a result of slow growth, debt itself has now become a drag on growth, creating a vicious circle.

The CDE is an independent policy research and advocacy organisation with a special focus on the role of business and markets. It enjoys wide support from big business and the corporate sector.

The paper points out that this year’s budget estimated that between 2015-16 and 2021-22 government and major state-owned companies would borrow almost R2.2 trillion — or R1bn a day, every day for the next seven years.

“We cannot afford what we already do. There is no room to increase the list whether for new smart cities, NHI or substantial numbers of police officers. Our situation requires a tough choice of priorities for expenditure and ferocious determination to stick to these,” CDE executive director Ann Bernstein said at the launch of the paper.

Had the economy grown by 1% more than it has since 2008, SA would have a debt to GDP ratio of 43.6% by 2018 rather than 63.3%, according to CDE modelling.

While SA has several options for how to proceed, the best of these is to cut government spending, particularly compensation for state employees. Quoting Treasury statistics, the paper points out that public sector wage increases have grown by an average of 11% in the decade following the 2008 financial crisis.

At the same time as reducing debt, SA needs a “tough-minded growth strategy”, says Bernstein. The CDE package of measures for achieving growth includes basic education reform, opening up to foreign skills, providing reliable, affordable energy, changing the labour market to promote a more labour-intensive economy, and fixing attitudes and regulations that hold business back.

While not all measures could be implemented simultaneously it was important that government “signalled” its intention to tackle these problems, beginning with the medium-term budget policy statement in October.

On Tuesday, finance minister Tito Mboweni released a consultative paper outlining a growth strategy for SA, naming a series of micro-economic reforms to ignite growth. Most of the measures described by the CDE also appear as suggestions in Mboweni’s growth strategy document.

Bernstein said that while she has yet to study Mboweni’s paper in depth, many of the suggestions it contains should be welcomed.