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. National Treasury of South Africa has refuted claims that the austerity measures taken by the government announced in last week’s medium-term budget could hamper the recovery of an economy ravaged by the Covid-19 pandemic
· Proposals to reduce expenditure by about R300 billion over the next three fiscal years drew criticism from politically influential labor groups, civil society organizations and some opposition members of Parliament.
National Treasury of South Africa has refuted claims that the austerity measures taken by the government announced in last week’s medium-term budget could hamper the recovery of an economy ravaged by the Covid-19 pandemic.
Proposals to reduce expenditure by about R300 billion over the next three fiscal years drew criticism from politically influential labor groups, civil society organizations and some opposition members of Parliament. They argue that the country should spend its way out of the longest recession in almost three decades. The government seems to have reconciled with the idea that some restraint should be there to cut the debt burden that has more than doubled over the last 10 years. The country’s fiscal stance has been expansionary over the last decade, even as budget allocations to some departments and
institutions may have been reduced.
Reduced spending is to target a primary budget surplus in 2026 fiscal year, when debt is expected to peak at 95.3% of gross domestic product. The Recent Reserve Bank research shows South Africa’s fiscal multiplier fell to less than zero in 2019 from 1.6 a decade earlier, suggesting the economic benefits of higher public spending is diminishing. Fiscal multiplier is a ratio used to measure changes in national income relative to government expenditure. Steps to narrow the budget gap and stabilize debt, along with structural reforms, is the preferred route for growth since higher borrowing and increased taxes, in the long run, would affect the economy.
