Economists who call for more spending should name the successful countries that have a budget deficit of 15% of GDP
A group of economists has written an open letter to the president and MPs asking them to reject the supplementary budget tabled by the finance minister on June 24. Yet failure to support the budget will make our fight against Covid-19 harder, prolong the recession and delay SA’s economic recovery.
It is true that we should spend more under the present circumstances, but unless we set out a clear and realistic path for reducing the deficit, SA’s access to capital markets will become more limited and more costly. Unless we demonstrate that we can repay our debts, at a point in future we will be unable to raise the amounts we need to tackle the devastating economic consequences of Covid-19.
Because of this healthy position, we were able to spend massively on public services and infrastructure to limit the impact of the crisis and ensure a quick rebound. In 2009 the budget deficit went up to 7% of GDP and stayed high for a time. By 2010, SA had recovered most of the lost growth and lost jobs.
Would we like to spend more? Of course, yes. Would we like to have the luxury of more time in which to reduce the deficit? Of course, yes. But because we have mismanaged our finances over the past decade, we do not have such luxuries. When there were calls over the past decade to restore our fiscal health and reduce the deficit, some the same economists who now write in criticism of the budget rejected any proposal to reduce the deficit. We are now paying the price of that folly.
Yes, we can get the finances from abroad. This would be good in the short term, but in the longer term we will have to pay back the loans with interest in a foreign currency. That will have two effects. First, it will result in a continuous and steady flow of funds out of the country, and second it will increase the sensitivity of our currency and economy to global shocks in future.
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