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Fiscal Consolidation and the Public Sector Balance Sheet in South Africa
Author(s) -
Burger Philippe,
Siebrits Krige,
Calitz Estian
Publication year - 2016
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/saje.12126
Subject(s) - economics , fiscal sustainability , recession , capital expenditure , consolidation (business) , debt ratio , real gross domestic product , monetary economics , debt , debt to gdp ratio , fiscal policy , government debt , public expenditure , government spending , economic policy , public finance , macroeconomics , external debt , finance , market economy , welfare
Between 1994 and 2008 the South African government reduced its debt/GDP ratio from almost 50% to 27%. Unfortunately this reduction was accompanied by a significant decrease in government's fixed capital/GDP ratio from 90% to 55% – fiscal sustainability might have been restored, but government's balance sheet did not improve. A similar story can be told for State Owned Enterprises. Since the Great Recession the fiscal situation worsened markedly – the public debt ratio again approaches 50%. To restore fiscal sustainability this article suggests that the government faces two options: (1) to create room for future countercyclical policy, the government must cut current expenditure and reduce the public debt/GDP ratio to its pre‐crisis level, or (2) substitute much‐needed infrastructure capital expenditure for current expenditure while stabilising the debt/GDP ratio at its post‐crisis level. Given that the much lower fixed capital/GDP ratio inhibits economic growth, the latter option might be more sensible.