Treasury growth forecasts to 2018 may be on the high side, and there is a considerable degree of risk that deficit and debt targets set out in the recent budget will not be achieved.
These are warnings contained in a report by the South African Institute of Race Relations (IRR), which adds that the downside risk is exacerbated by domestic factors that ranged from the prospects for possible acrimonious public sector wage negotiations to rocketing food prices, demands for extended welfare payments, a lack of sufficient investment in water infrastructure, and rising debt service costs as interest rates rise.
According to IRR economist Ian Cruickshanks: “Even if a ratings downgrade could be temporarily forestalled these domestic factors would make expenditure overruns difficult to avoid, this would in turn force further borrowing which would further depress South Africa’s credit rating.”
The IRR says that few South Africans understand quite how serious the economic crisis facing the country is or appreciate the full extent of the pressure this crisis will place on households over the next 24 months.
It also doubted that politicians – in the main – understood the political implications of slowing increases in the disposable income of households which, according to IRR CEO Dr Frans Cronje, “could fundamentally alter the political landscape of the country”.
The IRR says that only determined policy reform efforts in areas of labour, empowerment, and property rights could turn the economy around.
It warns that further austerity plans and tax increases were not a sustainable solution and according to Cruickshanks “would further worsen domestic economic circumstances and exacerbate their political implications”.