Beware dominant political and economic narratives, whatever they may be. Facts are hard to untangle from rhetoric, but we must try.
One such is the story that South Africa’s economic future is bleak due to financial mismanagement and that the IMF will have to come to our rescue. Some truth about our finances has turned into dire prophecies of imminent disaster.
Yes, corruption still has to be properly faced down, yes our national debt has ballooned and economic growth is in the doldrums but perspective is needed.
South Africa has been at the edge of the economic precipice so many times in my life that I’m a bit inured. After all, I saw the “debt standstill” unfold during apartheid, when big international banks, frightened by the possibility of revolution and growing opprobrium of the regime, told South Africa to repay all loans immediately. This was the equivalent to your bank telling you to repay your mortgage loan, car loan, overdraft, business loan and credit card debt overnight. The Reserve Bank governor had to fly around the world to negotiate a repayment plan. It was uncomfortable, but the political situation, with the country’s elite exhibiting a siege mentality and a President whose behaviour seemed with every passing day more like that of a South American dictator, overshadowed economic concerns.
Today, South Africa is far better off. Crime is a problem, as is the corruption, the scale of which the ANC in exile and supporters of a democratic South Africa did not envisage. But – and this needs stressing – no madly expensive and immoral plan exists to Balkanize the country into nominally independent Bantustans, the country is not suffering sanctions and disinvestment, and the army is not waging illegal, secret and ruinously costly wars in neighbouring territories. Inflation is under control. We have a social security system that softens the blow of poverty at least, a respected constitution, a democratic system immune at the national level to gerrymandering, and impartial courts.
Yet we are addicted to doomsaying.
Take the headline from the Citizen newspaper. R3-trillion is a big figure, but as all financial journalists know absolute figures often don’t mean much on their own. They must be measured against something to be meaningful.
The total value of South Africa’s goods and services was R4,87-trillion in 2018, according to StatsSA. It’s probably at least R5-billion now. So R3-trillion as a percentage of around R5-trillion is three-fifths, or 60%. That has to be compared with other countries to make any sense. A glance at the tables of national debt floating around shows it to be on the high side but not astronomical. US debt to GDP is more than 100%, for example.
Besides, debt is often presented as the economic problem rather than just one economic problem. As is often the case, I suspect the grim view of public debt is informed by false analogy with household debt. A household may be better off with a balanced budget, a nation should not except temporarily run budget surpluses. National private debt is at least as big a problem.
Something else is at play, too, a tendency to project personal problems onto politics and particularly political figures. If you are having a hard time, it’s somehow soothing to be able to blame Cyril Ramaphosa or Julius Malema or Helen Zille.
And then there’s the unconscious racism that indulges in nostalgia for a golden age we never had and resentment about losing political power. I get a sense that for some people at least it is not a question of whether our black-run country falls apart but when – whatever the evidence to the contrary.
What caught my attention recently was a report by the World Bank on the problem of global debt, focusing on the emerging and developing markets, and how debt can lead to financial crisis. The publication is the advance edition of Global Waves of Debt – Causes and Consequences.
The Bank underlines the problem of high levels of debt for economies like South Africa: “A sudden global shock, such as a sharp rise in interest rates or a spike in risk premia, could lead to financial stress in more vulnerable economies. Indeed, these risks were illustrated by the recent experiences of Argentina and Turkey, which witnessed sudden episodes of sharply rising borrowing costs and severe growth slowdowns.”
Where does South Africa stand? I searched for mention of South Africa in the World Bank documents and found few.
However, the Bank’s summary of economic weaknesses that will lead to crisis in countries can be tabulated and South Africa’s particular weaknesses ticked off.
|Fiscal and monetary weaknesses leading to crisis|
|Poor revenue collection,||No|
|Widespread tax evasion||No|
|Public wage and pension indexing,||Partly|
|Monetary financing of fiscal deficits,||No|
|Substantial energy and food subsidies.||No|
|Borrowing in foreign currency||Minor|
|Managed currency exchange rate||No|
|Weak bank and financial institution supervision||No|
|Growing fiscal deficit||Yes|
|Growing current account deficit||No|
|A shift toward a riskier composition of debt||No|
It is difficult to give yes or no answers to all the categories. How good is revenue collection in South Africa? How bad is tax evasion? Not as bad as some other countries where the governments struggle to collect income tax and rely mainly on import tax for revenue, which is I’m sure what the World Bank had in mind. Similarly, is bank supervision efficient enough? Some judgments will depend on who you ask.
South Africa scores definitively well on some categories: we don’t have subsidies or a managed currency exchange rate, and we aren’t financing government spending through the Reserve Bank. Government borrowing in foreign currency remains modest and most is long-term, unlike countries which borrow mainly short-term from banks (for the thinking on government debt management read The Optimal Maturity of Government Debt.
We do have growing fiscal deficits, that is the gap every year between what government spends and the revenue it collects. The deficit is expressed as a percentage of our economic output (Gross Domestic Product), so a stagnant economy also means the deficit it looks bigger than it would if we had better growth.
The cost of servicing South Africa’s debt is already projected to rise over the coming years, and the World Bank points out the big problem of paying for the debt us that a global crisis would mean paying much higher interest rates for the new debt we issue. What is often forgotten is that the South African government has assets as well as liabilities. Privatisation, a political no-no for the government, could be used to pay off debt. It is not a first or even a second option, but in a truly dire situation it would have to be considered.
The stagnant economy also puts pressure on demand for imports, so the current account deficit, which has been described as our checking account with the rest of the world is not soaring. However, that could change. And a deterioration in the foreign exchange value of the rand would mean a higher current account deficit. All this is examined in detail by the SA Reserve Bank in a diagnosis of our current account deficit.
Overall then we are not facing doom now. This does not mean everything is fine and the economy is working optimally for the majority, or that we should be blithe about the many pressing political and economic problems we face.