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Treasury: More borrowing doesn't guarantee higher economic growth

A Treasury breakdown shows that for every R1,000 spent this financial year, R340 goes on paying civil servants’ wages and R115 on debt-service costs; the two fastest-growing areas of expenditure.

Picture: Pexels

JOHANNESBURG - National Treasury says more borrowing by the government will not necessarily translate into higher growth, and that any fiscal stimulus cannot tackle underlying structural issues in the economy.

Responding to submissions from labour, economists, lobby groups and social justice activists on the mid-term budget policy statement, Treasury has told Parliament it is not adopting austerity measures and has also defended the credibility of its growth and revenue forecasts.

A Treasury breakdown shows that for every R1,000 spent this financial year, R340 goes on paying civil servants’ wages and R115 on debt-service costs; the two fastest-growing areas of expenditure.

Treasury’s Ian Stuart said increasing spending by borrowing more, as some are urging, or cutting back and raising taxes, as others are advocating – both have implications for the economy.

“So we are really in a dilemma, and what the MTBPS is proposing, is a kind of middle way that focuses on growth reform and a three to five-year plan to stabilize the debt to GDP ratio.”

He said more borrowing won’t automatically translate into higher growth.

“The quality of borrowing is what is critical. If you’re borrowing for consumption as opposed to investment, it’s harder to justify over time and has implications for inter-generational equity and also for growth.”