ASSESSMENTS

South Africa's Grim Economic Reality Shrinks Its Budget Aspirations

Feb 27, 2020 | 15:47 GMT

Tradesmen stand on the side of the road in Johannesburg, South Africa, seeking work.

Unemployed builders, tilers and plumbers seeking employment stand on the side of a road in Johannesburg soliciting for jobs. The government has revised South Africa's already grim economic outlook downward in its budget review for the 2020 fiscal year.

(GUILLEM SARTORIO/AFP via Getty Images)

Highlights

  • South Africa’s new budget outlook shows a realization Pretoria’s part that the government’s financial situation will continue to worsen over the next few years.
  • Although structural economic challenges have dampened South Africa's economy for years, a resolution that would put the country on a more sustainable path is not likely in the near future.
  • Contentious negotiations with labor unions over a public wage bill will not only increase the chances of public sector strikes, but also risk breaking the ruling ANC’s political alliance with the country’s main trade unions.

South Africa’s newest budget review paints a bleak picture for the country’s economy over the next three years. The budget plan for the 2020 fiscal year, unveiled Feb. 26, projects economic growth over the next three years of just 0.9 percent, 1.3 percent and 1.6 percent, respectively – and this may be optimistic, compared with the International Monetary Fund's projections. The new budget dramatically alters South African expectations in terms of fiscal and debt consolidation over the next year, as it no longer views balancing its primary budget by 2022 as possible. The new budget also attempts to curb years of wage and expenditure growth – setting up more confrontations between the government and labor unions....

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