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SA running out of time to sort public sector debt, warns CDE

The large gap between government spending and its tax collection rates which opened up in the aftermath of the global financial crisis in 2008 was the main reason for the country’s debt explosion.

Finance Minister Tito Mboweni addressing the media prior to his Annual Budget speech taking place on 20 February 2018 in Cape Town. Pictures: Cindy Archillies/EWN.

JOHANNESBURG - The Centre for Development and Enterprise (CDE) on Wednesday said time was running out for South Africa to deal with its public sector debt which is linked to the economy's inability to grow.

Public debt is over 60% of the GDP.

It's as high as at the end of apartheid at a staggering value of R3 trillion between government and state-owned enterprises.

The large gap between government spending and its tax collection rates which opened up in the aftermath of the global financial crisis in 2008 was the main reason for the country’s debt explosion.

This is according to a report by CDE which collated research among leading economists in the country.

The organisation’s executive director Ann Bernstein warned that the government’s approach was pointing to an inevitable continued slow economic growth that would reduce standards of living.

“If we try to pay off the current debt at the rate of R100 per second, it would take about 1,000 years. The key reason is the large gap between revenue and expenditure since 2009.”

The risky trends which need to be changed by government include debt expansion, while government has to stop borrowing more than it spends on servicing debt.

Although the centre has welcomed Treasury's discussion paper on the country's economic strategy, it said it was too early to comment on its feasibility.

CDE said some state-owned companies must be allowed to fail and the labour market should be improved to revive the declining economy.

Some of the suggestions from the centre include addressing skills shortages by allowing more skilled migrants in the country.

Bernstein added: “The biggest question facing South Africa is whether government and the ruling party fully grasp the depth of the changes required and how much leadership and effective communication and hard choices it will take from the president and his team to get this done.”

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