CAPE TOWN – Finance Minister Tito Mboweni, when delivering his Medium-term Budget Policy Statement, cautioned that an uncontrolled increase in borrowing costs would harm small businesses, ordinary South Africans and the poor the most.
Mboweni said the Cabinet remained resolute and would walk through the narrow gate towards fiscal sustainability. Right now, government is borrowing at a rate of R2.1 billion per day.
“We must be careful to avoid the fate of countries like Argentina and Ecuador that defaulted on their debt this year.
“Countries that find themselves in default see sharp GDP contractions and currency depreciations. On current trends, more of our taxes are being transferred to bondholders, rather than to critical services for our people,” he said.
Mboweni said in 2009, when the country had debt of 31.5 percent of gross domestic product (GDP) and the real yield on government debt was about 3 percent and every rand of government spending got R1.60 in GDP.
“Now, however, at such elevated real interest rates, every additional rand gets us less than a rand of GDP. It may even subtract GDP, leaving us poorer and more indebted than before.
“And it is easy to see why. As we borrow more, we pay even more. We also have not been spending on infrastructure, which creates long-term growth,” he said.
Mboweni said the government acted to instil confidence amongst discouraged work seekers, businesses bruised by lockdown and facing uncertainty, farmers and farmworkers who produced the food for the country, and international partners who knew that South Africa is a great place to invest.
He said the future of work was now different in the post-Covid-19 world.
“The public service must adapt to the new world after the pandemic. The crisis has highlighted and unfortunately widened inequality. We must continue to protect the most vulnerable.”