BUSISIWE MAVUSO: Business not indifferent to the plight of the poor
POSTED ON: August 2, 2022 IN by Admin
By Busisiwe Mavuso
Until we stabilise the national debt we’ll keep paying more just to service it.
SA businesses do much to alleviate the suffering of the poor. Through their corporate social investment projects, taxes and black economic transformation initiatives, among others, billions of rand are directed towards needy causes.
However, with poverty, inequality and unemployment so widespread, we are barely making a dent in tackling our country’s key challenges, central to which is creating a more favourable environment through economic reform to attract higher levels of investment and in turn economic growth and job creation.
In the wake of our recently released report on the implications of implementing a basic income grant (BIG), business has been accused by some of being indifferent to the plight of the poor. Our actions prove otherwise.
Outside of direct assistance to the poor, organised business is united behind the cause of poverty alleviation. We all want an environment where everyone can live with dignity, and we’re working hard to develop that through the economic reforms we’ve pushed so hard for.
While the benefits of their effective implementation will go a long way to tackling poverty, those benefits will only flow in the long term. Business fully recognises the immediate crisis we’re facing. With rising inflation, the suffering of the poor is set to intensify.
What business cannot support are long-term policies that will increase SA’s debt burden to the point where it will send us into the economic abyss. SA’s debt is already rising far faster than its income. If that trajectory is not changed, the country is headed for insolvency. If we had managed the country’s finances better, this may not have been the case, but unfortunately the ravages of state capture have made this a reality we cannot escape.
A sovereign debt default is likely to bar SA from accessing debt markets again for years and make borrowing more expensive when it again becomes available. In such a scenario, an IMF bailout is a realistic consequence, one in which we could lose a substantial portion of our sovereignty.
The report on the BIG notes that at about 70% of GDP, outstanding government debt combined with high interest rates means debt service costs have increased significantly, claiming 19% of budget revenue in 2022, from 9% in 2008/2009.
Until we stabilise the national debt we’ll keep paying more just to service it. That expenditure crowds out funding for important projects. If we did not have any debt service costs we would have an extra R269.7bn available in 2022 — and a similar amount every year in future — to go towards areas where it’s desperately needed.
While we’re a long way from such a happy state, we are on a path to stabilising our debt, after which debt service costs will start to come down. Finance minister Enoch Godongwana’s fiscal trajectory sees the gross loan debt-to-GDP ratio climbing from about 69% of GDP now to stabilise at 78.1% in 2025/2026 — that’s from about 30% in 2006/2007, having fallen from a previous high of 50% in the mid-1990s.
During his budget address, Godongwana noted that debt service costs were the fastest-growing spending item in the budget. His plan is for these to fall from 23.1% in 2021 to 22% as a share of main budget revenue in 2025/2026. Over the medium term, the gross borrowing requirement will average R503bn, down from R550.5bn at the time of the 2021 budget.
Simply put, this means we have to borrow about R1.4bn a day to fund current debt, assuming we can borrow over weekends. This is simply staggering. If we stray significantly from our fiscal path, the government will simply have no money to pay for its existing welfare obligations, which are already huge, let alone find money to fund new programmes.
Stabilising SA’s debt while implementing the numerous reforms designed to improve our economic prospects is the only sure way to create the kind of environment in which all South Africans have a decent, basic standard of living with access to healthcare and quality education.
On the latter, until the government meaningfully addresses the crisis of the poor quality of state education, it is dooming future generations to further poverty and inequality.
We do need to urgently address the immediate plight of the poor, but doing so in a way that is unsustainable and undermines our tax base, or borrowing even more money, will ensure their situation is far worse further down the line.
As our report states, when confronted by the question of whether SA can afford not to implement a basic income grant, the appropriate response would be: “Can South Africans — especially the poor — afford for the country to default on its debts and face a financial and economic crisis?”
• Mavuso is CEO of Business Leadership SA. This article first appeared in Business Day.
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