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President Cyril Ramaphosa.
South Africa will not be able to meet the debt targets of its finance ministry and it may be undesirable for it to attempt to do so at a time when the economy is being hit by the fallout from the coronavirus, according to a president-appointed advisory panel. Cyril Ramaphosa.
In a more than 100-page document advising the government on an economic recovery program that Ramaphosa will present on October 15, the Presidential Economic Advisory Council said spending cuts could stunt growth and have other adverse consequences.
“We risk that nurses and doctors cannot provide health services due to lack of medicines, paid teachers but without learning materials or classrooms, police officers at stations because there is not enough gasoline to go out on patrol,” the panel He said.
“This undermines the progressive realization of socioeconomic rights to health, education and basic services, and will further reduce the efficiency of social spending, which is currently very poor.”
The plan, which was presented to the president and seen by Bloomberg, is an attempt to counter the effect of a pandemic that is expected to result in South Africa’s largest economic contraction in nearly nine decades. Finance Minister Tito Mboweni has said he plans to halt the rise in debt levels to 87% of gross domestic product in fiscal year 2023-24, falling to 74% in 2028-29. Without an intervention, the proportion could rise to 141% over the next decade, he said.
The advisory panel’s proposals are based on a plan presented by a group of labor, business and government leaders and another by the ruling African National Congress, which were considered by the cabinet. Tyrone Seale, the Ramaphosa spokesman, did not return calls to his mobile phone or immediately respond to a message seeking comment.
The government should also push an economic stimulus package to 15% of GDP, from 11%, and establish a rescue fund for companies that were healthy before a lockdown was imposed at the end of March to slow the spread of the virus. said the panel, which has about 20 members, from academics to a former governor of Tanzania’s central bank. It also called on the Reserve Bank of South Africa to use the long-term refinancing operations model run by the European Central Bank, a measure that offers banks long-term financing at attractive terms to stimulate lending.
Increases in fuel tax and estate taxes should also be considered, as well as a three-year “solidarity tax” that would increase income tax for those who earn more, the panel said. He recommended curbing the state’s wage bill and limiting increases to social assistance payments.
The panel criticized the government’s delay in encouraging the expansion of renewable energy production and delays in allowing private companies to generate more of their own electricity to end regular power outages that have hampered economic growth.
“Those countries that do not adapt to a green transition will find themselves lagging behind and excluded,” he said. “The limitations to achieving this do not lie in our endowment of natural resources, the availability of appropriate technologies or even access to the necessary financing; it is in our heads and in our political economy ”.
Eskom Holdings SOC Ltd., the state power monopoly, should be mandated to raise “large-scale concessional climate finance from the international community” in exchange for speeding up the shutdown of its coal plants, “he said.
The council also said:
- Pension funds and other private investors will support infrastructure projects if there is a clear portfolio for the next 10 to 20 years.
- Allowing the construction of 5,000 to 6,000 megawatts of electricity generating capacity per year could encourage investment of R500 billion and create 50,000 jobs.
- R100 billion will need to be spent on the power grid by 2030
- Introducing a basic income subsidy could cost R243 billion a year and would require tax increases.
- To accelerate land reform, an agricultural development fund must be established, funded by the private sector and donors.
