GAVIN KEETON: State and SOEs must devise an urgent plan to escape debt trap

Trevor Manuel, former finance minister, recently described president Jacob Zuma’s term of office as a "disaster" for SA. Measuring the full costs of poor economic management over the past decade is difficult. How much faster the economy might have grown, or how many jobs could have been created had government been better led cannot be known. But the enormous increases in debt incurred by government and the state-owned enterprises (SOEs) as a consequence of poor and corrupt management can be measured. The government and most SOEs are now in debt traps from which it is difficult to escape. A debt trap exists where debt triggers its own growth even if current spending and income levels are constant. This happens when the interest burden exceeds the growth in income, or if current losses exceed the amount of interest being paid on past debt. The result is an automatic ratcheting up of debt and interest payments, which either "crowd out" other spending or force ever-growing borrowings. T...