South Africa has little capacity for a stimulus package

By Felicity Duncan

Following the announcement that South Africa has officially entered a recession, the ANC has called for an economic stimulus package. Some of the proposals are the kind of sensible things that are frequently proposed and never pursued – cutting red tape for small business, shifting policies to get data prices lower. But most of the stimulus involved boils down to increased government spending. The ANC is calling for expanded investment in public works, agricultural support packages, and some tax credits (which are spending by another name).

In principle, this is sound. Recessions can be helped by a boost to demand from increased government spending. But unfortunately, this is not a realistic option for South Africa to pursue. The South African government has no money, so stimulus would have to be funded with debt. And with sentiment turning against emerging market currencies and equities, any debt would carry have to be issued in dollars at a high coupon – unaffordable and ill-advised. It's bad news that government finds its fiscal hands tied as recession rears its head. But it's also ironic that the ANC is calling for this package of measures when it is, by and large, the ANC that has ensured such measures are impossible.

___STEADY_PAYWALL___