17 November 2011
The International Monetary Fund (IMF) has dismissed concerns by ratings agency Moody’s that spiralling state spending threatens to raise South Africa’s debt burden beyond sustainable levels, Business Day reported on Thursday.
Business Day’s Linda Ensor spoke on Wednesday to IMF assistant director for Africa Abebe Selassie, currently in South Africa with a group of experts conducting research for the IMF’s next report on the country’s economy.
Last week, Moody’s lowered South Africa’s credit-ratings outlook from stable to negative, citing increased public spending demands, as well as “heightened political risk”.
Moody’s said SA’s “political commitment to low budget deficits and the ability to keep within current debt targets could be undermined by popular pressures and rising internal strains within the [ruling] African National Congress” and its trade union allies.
Selassie, however, told Business Day he thought political pressures on South African state spending were not overwhelming, while backing the government’s countercyclical fiscal policy as supportive of the economy.
“There is recognition of the need to moderate spending growth,” Selassie said. Referring to Finance Minister Pravin Gordhan’s recent Medium-Term Budget Statement, he added that this reflected a consensus view of the government “that spending growth going forward has to be more restrained than in the past.”
Business Day noted, however, Selassie’s concern with South African manufacturing, which was struggling with rising production and labour costs.
Govt promises to rein in spending
Ensor wrote: “Mr Selassie stressed in a briefing to Parliament’s finance committee [in Cape Town on Wednesday] that the government would have to rein in spending to contain debt, which is projected to rise from about 27% of gross domestic product in 2009 to 40% by 2015.
“Debt service costs, the fastest-growing item of state spending, are expected to reach R115-billion by 2015 from R76.9-billion this year.
“The government has committed itself to raising real non-interest expenditure by only 2.3% a year over the next three years, against an average 7.9% over the three years to end 2011-12.”
If this were achieved, Business Day quoted Selassie as telling the finance committee, there were “strong prospects” that the country’s debt would be contained.