South African Finance Minister Tito Mboweni will unveil his country’s 2020 budget today in Cape Town. The government is under
South African Finance Minister Tito Mboweni will unveil his country’s 2020 budget today in Cape Town.
The government is under considerable pressure to address the country’s growing debt crisis. According to the latest data from South Africa’s treasury department, debt currently exceeds 50% of the country’s GDP and is likely to top 80% by the end of the decade.
The deficit has increased as results of a number of state-owned company bailouts and an economy growing at less than 1% a year and not taking in sufficient revenue.
With unemployment at nearly 30% and labour costs under an existing three-year wage agreement making up 35% of government spending, cutting spending or raising taxes will not only be unpopular but could also further worsen the country’s ailing economy. Indeed, expect a budget deficit even wider than Mboweni projected last October and a likely credit downgrade for the fiscal year ahead.
Solving the debt crisis will require political leadership willing and politically capable of surviving the potential unpopularity of reducing wages and cutting labour benefits. However, reducing the deficit will only become more of an uphill battle with a credit downgrade, which will discourage needed external stimuli to the economy, like foreign investment.
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