This warming comes from the Institute for Race Relations (IRR) who says in a statement this week the average South Africa lives in oblivion to the full extent of the pressure the country’s financial crisis will place on households over the next 24 months. The IRR compiled a report that found that Treasury growth forecasts up to 2018 may be too the high side, and that there is a considerable degree of risk that deficit and debt targets set out in the recent budget will not be achieved.
The IRR said the downside risk was exacerbated by domestic factors that ranged from the prospects for possible acrimonious public sector wage negotiations to rocketing food prices, demands for extended welfare payments, a lack of sufficient investment in water infrastructure, and rising debt service costs as interest rates rise.
IRR CEO Dr Frans Cronj says it doubted that politicians – in the main – understood the political implications of slowing increases in the disposable income of households which could “fundamentally alter the political landscape of the country”.
According to IRR economist Ian Cruickshanks, “even if a ratings downgrade could be temporarily forestalled these domestic factors would make expenditure overruns difficult to avoid, this would in turn force further borrowing which would further depress South Africa’s credit rating”.
The IRR said that only determined policy reform efforts in areas of labour, empowerment, and property rights could turn the economy around. It warned that further austerity plans and tax increases were not a sustainable solution and according to Cruickshanks “would further worsen domestic economic circumstances and exacerbate their political implications”.