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South Africa is strapped for cash and the Reserve Bank has a stern warning for the ruling African National Congress: You can’t spend your way out of trouble.
“Deteriorating fiscal risks lead to higher interest rates,” Reserve Bank Governor Lesetja Kganyago said after holding interest rates at 8,25 percent. “Foreigners will want to be compensated.”
South African government bond yields have climbed above 12 percent in recent months even as the country’s inflation rate has declined to 4,8 percent from above 7 percent, as investors weigh threats to the public purse. The central bank aims for inflation at the mid-point of its 3 percent to 6 percent target range.
Tax revenues fall short of spending and debt issuance to make up the gap has boosted yields. The National Treasury wants austerity measures but faces opposition from others worried about public unrest ahead of next year’s election, in which the ANC risks losing its majority.
“Government spends more than it earns from taxes. We spend as a nation more than we produce. We import more than we export,” said André Roux, head of the Futures Studies programme at Stellenbosch Business School. “These kinds of deficits cannot be sustained for a long period.”
Party leaders meet in October to hammer things out and Finance Minister Enoch Godogwana, who presents a budget update on November 1, will be under intense pressure to go easy from other ministers. The fallout over proposed cost containment measures is believed to be a contributing factor in the delay of the budget, which ordinarily happens in late October.
Some in the ANC fear a repeat of the deadly violence of 2021 if social spending programmes are axed, in a country where millions live in chronic poverty alongside conspicuous wealth. — news24.
Online Reporter