SARB governor has warned of the dangers of implementing fiscal austerity during a prolonged contraction of the economy.
SOUTH Africa is “no way near debt distress”, the Governor of the SA Reserve Bank, Lesetja Kganyago, has said.
This despite the country’s debt-to-gross domestic product (GDP) ratio nearing the 100 percent mark, seen as a red line for investors and credit rating agencies.
Speaking online during an African Development Bank panel discussion on Friday, Kgamyago warned of the dangers of implementing fiscal austerity during a prolonged contraction of the economy.
“Debt is an outcome of your fiscal policy stance, so for as long as you are running a fiscal policy deficit you will have debt,” Kganyago said. “(But) it could actually be self-defeating if you try to implement fiscal consolidation during a growth crisis.”
Africa’s most developed economy, and the hardest hit by Covid-19 with more than 1.5 million confirmed cases, was in recession before the pandemic struck, accumulating a large stock of debt over the last decade to plug widening budget deficits.
In last month’s Budget, the Treasury forecast the deficit to more than double to 14% of gross domestic product (GDP) in the 2020/21 fiscal year, from 5.7% in the previous year. Debt as a ratio of growth is seen reaching 87.3 percent by 2023.