Buck stops here and not with the dollar

APERIOD of self-flagellation inevitably lies ahead for the South African economy, which is not in a good space, thanks to the twin fiscal and trade deficits, energy insecurity, labour conflict, policy uncertainty, weak investor confidence and the strong dollar, among other things.

Red lights have been flashing for a while, but there seems to be a whiff of panic in the air. These challenges need to be urgently addressed, but cool heads and steady hands are required to turn the situation around.

As South Africa moves beyond the recent budget debate, digests what the credit rating agencies are saying and plans ahead, it remains essential to reinforce key perspectives about some economic fundamentals.

Fiscally, governments need more room to manoeuvre than households in balancing their spending, revenues and debt. But even for governments there are fiscal boundaries at the macroeconomic level, although economists do not always agree on where they should lie.

The perception that these boundaries are arbitrary — public debt at 50% of GDP, say — does not mean they are unimportant. It is wise to stay within limits that do not provoke negative reactions and to project a clear message that the government is in control of its chequebook.

Over the next year, the government must show that, in its entirety, it is applying fiscal discipline throughout the public sector, including wage increases.

Enforcing sensible fiscal discipline now means avoiding drastic fiscal austerity later, as the Greek experience amply demonstrates.

Fiscal consolidation is now a fundamental, irrespective of future tax changes. Perceptions of the efficacy of government spending are important, because public support for the tax system is necessary for its effective functioning.

Another economic fundamental is that, while it is desirable to stay within broad global rules of thumb regarding a tolerable public debt burden for South Africa, what the country really needs is a radical, sustainable improvement in its flagging growth rate.

This means a higher, job-rich growth rate — and hoping for 3% by 2017 for a country with our economic potential is derisory.

In managing these challenges, the buck stops here, not with the dollar or when US interest rates will be raised. The solutions mainly lie in the domestic leadership and political will needed to implement the national development and strategic plans.

The failure to implement these plans has prevented efficient delivery, created uncertainty, undermined investor confidence and made the economy more vulnerable.

Tough decisions are required, such as effectively restructuring inefficient parastatals like Eskom and reforming the labour market. The private sector also has to rediscover the necessary discipline to provide a stronger voice to help identify and implement solutions.

Announcing things is not the same as getting them done. A failure to effectively implement will only precipitate further debate about “worst-case scenarios”.

The onus is now on South Africa to prove the sceptics wrong by demonstrating that it will indeed get its fundamentals right.

Parsons is a professor at the North-West University Business School and former deputy CEO of Business Unity South Africa