Looking for measured consolidation and faster growth
01 November 2016
The message from Finance Minister Gordhan at this year’s Medium Term Budget Policy Statement (MTBPS) was one of “measured consolidation” and a call to tackle South Africa’s problems in a committed, coherent and coordinated way. Government will take steps to reduce its budget deficit (the difference between spending and revenue) over the next three years. Closing the deficit too quickly – through a combination of spending cuts and tax increases – risks tipping the economy into recession and worsening the debt-to-GDP ratio, instead of reducing it (ask Greece). Closing it too slowly, especially relative to promises made, risks a loss of credibility, ratings downgrades, and therefore higher borrowing costs that will end up increasing the debt ratio.