The South African government is prepared to act in order to cushion the overall economy from the current global economic scenario, which unfortunately presents significantly greater uncertainty for developing nations.
“Precisely what we suggest is that we are going to assess and manage debt; we intend to make certain we do more than enough for infrastructure. We are going to do things we have to do to refloat the economy,” Finance Minister Pravin Gordhan stated.
“Our own view is that it’s 60/40 against a double dip recession while other people are predicting a 50/5 chance, dependant upon the decisiveness with which other countries in the world actually starts to deal with its problems. We will have to wait and see,” said Gordhan. The National Treasury and the Reserve Bank have already released a press release that the country would keep an eye on the impact of the downgrading of the US and sovereign debt crisis in Europe in relation to the South Africa’s economy.
Last week, rating agency Standard & Poor downgraded the US credit rating, reduced from AAA to AA+. The Treasury has briefed Cabinet on the effect of global developments and additionally precisely what it meant for the economy. What was currently happening in the recovery stages (which usually take 5 years at the very least) following the 2008 global financial crisis was that political constraints, as with the US, are now being experienced.
“… At which brinkmanship was exercised by key political players [and] the problem of sovereign risk, countries were required to bail out their banks. That took on a lot of debt and in addition to the debt, historically developed countries have taken on too much debt,” said the minister, adding that South Africa’s debt to GDP ratio was between 34 and 35 percent this year, when compared to the 80 to 200 percent of Japan.
The uppermost level of debt to GDP that South Africa is predicted to reach is 40 percent. “Political brinkmanship and political dithering along with a absence of decisiveness in certain regions of the world has created uncertainty in the world concerning whether or not we are going to have measures to make sure that the right level of growth is achieved in South Africa,” said Gordhan.
South Africa is going to take a growth friendly strategy along with the consolidation of debt. “What we’re undertaking is monitoring the channels through which South Africa could possibly be impacted upon,” he was quoted saying, adding the fact that this may very well be by way of financial systems. Gordhan said South Africa’s financial regulatory system was basically sound. He explained that South Africa had made it through the first crisis and that “we will ensure we make it through.”
South Africa continues to be cautious about how precisely it borrows money and that it has not asked the general public to pay extra for what it has borrowed. “All of us intend to make certain that we are able to bounce back if required,” said the minister.
Regarding the issue of South Africa’s conditional R2.4 billion loan to Swaziland, Gordhan pointed out that South Africa is going to keep an eye on the situation in that country. He explained that a joint board, following a 2004 agreement, will get together annually or more times if required to monitor the situation.
Previously Cabinet spokesperson Jimmy Manyi stated the advance to Swaziland was not a loan from the South African fiscus but a guarantee that is backed by their own South African Customs Union (SACU) payments.
The three tranches to Swaziland is going to be paid dependant upon the proven fact that the Swazi government generates confidence building measures not to mention that fiscal and related technical reforms requested by the International Monetary Fund are put in place and that South Africa offers capacity building support. Additionally it is based on the pillar that there is co-operation in multi-lateral engagements.
Repayment of the loan is going to be carried out by debit order, which will be paid to that country by way of a debit order against the SACU account which happens to be held by South Africa’s Reserve Bank. The money, which will not be taken from taxpayers, is furnished by the Reserve Bank on a 5.5% interest rate.