Further downgrades inevitable if SA doesn’t change policy
“Given South Africa’s low Gross Domestic Product(GDP) growth, the likelihood of the country being further downgraded by international ratings agencies is inevitable”, Efficient Group chief economist, Dawie Roodt, warned.
Speaking to delegates in Pretoria, he pointed out that South Africa also had the second-highest debt burden in the world, after India.
Roodt stated that the long-term lending of money to finance short-term expenses was problematic. “As a country, we don’t even need to save; we just need to spend less. This would lead to a 3% increase in the country’s savings rates.”
Between 2011 and 2015, State expenditure went up dramatically, with more than one-third of the economy in the hands of State services. Roodt noted that higher social expenses contributed the largest portion of rising State expenditure.
“If you keep spending more money than you are receiving, you are going deeper into overdraft. If the economy doesn’t grow as planned, there will be a downgrade,” he said.
He suggested that, by decreasing the size of government, by privatising some sectors, decreasing government expenditure, liberating labour laws, lowering taxes and increasing government productivity, the country could see improved economic growth.
Roodt noted that the country could learn from Switzerland, which encouraged its citizens to save instead of spend. “Switzerland has always believed in deflation, while the rest of the world is trying to create inflation.”
Meanwhile, Roodt believed recessions were beneficial and necessary for a healthy economy. Comparing it to a veld fire, he noted that a recession, although damaging and “politically painful”, rids the economy of old and redundant businesses, recirculating capital and creating space for new and innovative businesses.
“Do not underestimate the value of a healthy recession,” he stated.
Source Engineering News 17/03/2015