- Stanlib's chief economist Kevin Lings says unless Finance Minister Tito Mboweni delivers a budget that makes serious cuts to government expenditure, SA's debt levels will spiral.
- If the country continues on the path it's in, debt default is inevitable.
- While public sector unions are planning to approach the Constitutional Court to fight National Treasury's attempt to contain wage increases, Lings says the public service wage bill must be cut.
Unless Finance Minister Tito Mboweni delivers a budget that makes serious cuts to government expenditure, South Africa's debt levels will spiral, says Stanlib chief economist Kevin Lings. And, if the country continues on the path it's in, debt default is inevitable, he warns.
With a debt-to-GDP forecast to reach 110% by the end of the 2024 fiscal year, organised labour resisting efforts to shrink the public wage bill and state-owned companies continuing to be a drag on the fiscus, the fear that SA could be headed down the path of defaulting nations is real, says Lings.
Speaking at the 2021 political and economic outlook webinar hosted by investment house Glacier on Friday, Lings said this year, Mboweni is under the most immense pressure he's ever been to push changes in the budget that will prevent SA from falling off the fiscal cliff.
Mboweni himself has acknowledged that there's a real fear that the country will default on its debt if government does not get the public expenditure numbers to go down quickly.
Current path not sustainable
"The path that we are in is just not sustainable. And so that's the key message. So, the budget this year is critical to see whether [Mboweni] has the political will to try [to] get these numbers to move down, which is going to include ... the wage discussion. Otherwise, yes. The default is inevitable," said Lings.
National Treasury expects that public debt to reach 81.8% for the 2020/21 fiscal year and then stabilise at 95.3% of GDP by 2025/26. Compared to other emerging markets, SA had the largest debt-to-GDP increase in the past three fiscal years.
The debt situation isn't helped by the fact that South Africa's tax revenue has been falling behind Treasury's estimates and the fiscal ceiling that the country has reached in terms of rolling out any further stimulus packages that could boost consumer expenditure and induce some vibrancy in the economy. But Lings says all is not lost.
"The good news is that it's nowhere near as far behind as what the minister told us in October this year. I must say that government's budget numbers do look a lot better; we've caught up on some of that tax revenue. But even then, government is not in a position to significantly expand expenditure, in order to get the economy going," said Lings.
The only hope for SA to get the economy going again is the infrastructure projects drive that President Cyril Ramaphosa first announced in June 2020. Lings said the private sector is interested in investing in these projects.
But while government had promised to get these projects initiated in a short period of time, Lings said his concern was that he is not seeing enough urgency around the implementation of that infrastructure initiative.