Ramaphosa's advisers say SA's plans to reduce debt are too ambitious

The government's plans to curb rising public debt are too ambitious, says a team of local and international economic advisers to President Cyril Ramaphosa. They recommend a “more gradual and credible” approach.

Debt-service costs in SA risk hampering efforts to fight the Covid-19 crisis and crowding out spending on priorities such as health care, education and lifting millions out of poverty.

Debt repayments are close to 12% of total government spending and the fourth-largest spending item, similar in size to what is spent on health, according to the budget presented in June to combat the coronavirus.

The recommendation by Ramaphosa's economic advisory council, one of many contained in a report seen by Reuters, will fuel debate about the country's fiscal strategy ahead of finance minister Tito Mboweni's midterm budget later this month.

“The pace of debt reduction is unrealistic,” the council said, commenting on the National Treasury's target, set in June, for government debt to peak at roughly 87% of GDP in the 2023/24 fiscal year.

“A more gradual but credible debt reduction target ... about 100% of GDP is recommended.”

Neither the Bank nor Ramaphosa's spokesperson immediately responded to Reuters' request for comment. The Treasury said it would respond later.

SA's economy was in recession before the Covid-19 pandemic struck, and one of the world's strictest lockdowns and a drop in global demand for SA's exports have worsened its woes. Forecasts are now for a GDP contraction of at least 7% this year.

Ramaphosa, who appointed the advisers last year to improve economic policymaking, is to present a Covid-19 recovery plan in parliament on Thursday.

Their other recommendations included that the Bank should maintain measures to support bank lending into 2021, and that there was room to increase a government relief package from the current 11% to 15% of GDP.

The advisers said the government should try to boost uptake of a loan guarantee scheme backed by the Bank and the Treasury, and set up a rescue fund for illiquid companies.

Ramaphosa became president in 2018 and has been trying to revive investor confidence but he has faced entrenched opposition within his governing ANC.

Reuters

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