Sustainable fiscal policy and economic growth in South Africa
Stellenbosch Working Paper Series No. WP15/2019Publication date: November 2019
Author(s):
[protected email address] (Professor Emeritus, Department of Economics, Stellenbosch University)
Following years of fast-rising public debt levels and low economic growth, how can the South African government re-establish fiscal sustainability? To assess the sustainability of South African fiscal policy, we use Markov-Switching VARs to estimate fiscal reaction functions. The fiscal variables considered are the primary balance, total non-interest expenditure, total expenditure and total revenue. The MS-VAR also considers the impact of fiscal policy on economic growth. We subsequently consider what size of primary balance adjustment is required to stabilise the public debt/GDP ratio, followed by an assessment of the various revenue and expenditure adjustment options open to government to achieve the required primary balance adjustment. We find little scope to increase revenue, and that government’s salary bill and goods-and-services budget should carry the load of the adjustment. In addition, state-owned enterprises (SOEs) should be restructured urgently to arrest the fiscal risk SOE debts and guarantees hold for government finances.
JEL Classification:E62; E63; H62; H63
Keywords:Public debt; budget deficit; primary balance; economic growth; government expenditure; tax revenue
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Upcoming Seminars
Monday 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
12:00-13:00
Prof Derek Yu: University Of The Western Cape
Topic: "Examining the teaching, assessment and research activities of the South African Economics Departments"
BER Weekly
13 Jun 2025 Another global flashpoint ignites as Israel attacks Iran’s nuclear facilitiesThe story for the week was initially relatively positive, with the overarching narrative being that the US and China agreed on a trade truce. However, overnight, Israel struck Iran’s nuclear facilities, military sites and killed senior commanders in dozens of strikes. While Israel has attacked Iran before, this is the first time nuclear facilities were...
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