Economic reforms vital for growth

JOHANNESBURG – The Organisation for Economic Co-operation and Development (OECD) has called for the implementation of structural reforms in the country’s economy, warning that growth could contract by more than 8 percent if trading partners experience a second wave of the coronavirus outbreak.

The OECD said in its latest survey of South Africa’s macroeconomic and structural policies on Friday that the country needed to put growth on a sound footing going forward. OECD director for economics department country studies Alvaro Pereira said the government’s biggest priority should be to restore fiscal sustainability, including taking steps to reduce the public sector wage bill and transfers to state-owned enterprises (SOEs).

Pereira said that bold fiscal measures were needed to curb spending pressures.

“South Africa cannot afford to delay reforms,” Pereira said.

“It is essential to undertake reforms to restore long-run fiscal sustainability and growth, while continuing to support the economy in the short run.”

Public sector wage increases are the main driver of government spending as the government wage bill represents 12 percent of gross domestic product (GDP) and 38 percent of total spending. Government financing of SOEs also remains high and represents risk to debt sustainability and public finances. The nationwide lockdown has reduced activity in mining and industry while bringing the tourism, entertainment and passenger transport sectors to a near-standstill. Growth has collapsed, unemployment has breached the 30 percent mark for the first time with more 16.4 million jobless.

Treasury and the SA Reserve Bank have revised lower their GDP forecasts for the year as the pandemic devastates growth. The government now expects the economy to contract by 7.3 percent.

The OECD survey found that the pandemic had added to South Africa’s long-standing challenges such as rising unemployment and income inequality.

National Treasury director-general Dondo Magojane said it was important that SOEs were able to fulfil their developmental mandate whilst raising their own capital through being managed better.

“It’s important that on one hand we balance the support that we give and support those that can expand and remain critical to the economy, but also to an extent also close down those that are not critical,” Magojane said.

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