Corruption, unemployment, poverty and corona are all contributing to take us down.
South Africa is an upper-middle-income economy, one of only eight such countries in Africa. Following 1996, at the end of over twelve years of international sanctions, South Africa's Gross Domestic Product (nominal) almost tripled to its current peak at US$416 billion in 2011.
Government spending remains too high for the tax base, and this gap has only increased as a result of the 2020 recession.
This is a key point in the National Treasury’s 2021/2022 annual performance plan which it presented to parliament on Tuesday (4 May).
Treasury said that the gap between revenue and expenditure has increased significantly in 2020/21, widening the main budget deficit to around 12.3% of GDP.
“Large adjustments to government spending are therefore required to return the public finances to a sustainable position,” it said.
Treasury said that gross debt is projected to reach 80.3% of GDP in the current fiscal year, stabilising at around 88.9% in 2025/26.
“Additional fiscal pressures from the broader public sector – including state-owned companies, social security funds and municipalities remain unresolved.
“The fiscal trajectory is a major source of uncertainty and, along with unresolved structural reforms, keeps South Africa’s risk premium elevated, and thereby pushes up borrowing costs for the economy as a whole.”
Treasury emphasized that the South African economy continues to battle a low and negative growth trend, which exacerbates high levels of unemployment, poverty and inequality as the GDP per capita continues to decline.
“At the forefront of this state of the economy, are delays in implementing growth-enhancing reforms,” it said.
“Electricity constraints, inefficient network industries such as water and transport, the high cost of doing business, declining productivity, and low confidence (among others) have led to reduced investment and a cycle of weak economic growth.”
The unemployment rate according to the expanded definition of unemployment increased by 0.6 of a percentage point to 43.2% in Quarter 1 of 2021 compared to Quarter 4 of 2020. “The official unemployment rate among youth (15-34 years) was 46.3% in Quarter 1 of 2021. SA unemployment rate ran from 29% in 2019 to 43.2% in 2021 second quarter.
Persistent inequality, and poor government policies have all been cited as contributors to the weak numbers. South Africa's inflows of foreign investment, a key enabler in employment prospects, also declined by 39% to $3.1 billion in 2020.
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