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SA fiscal woes and default risk: A global perspective

After an unsustainable decade-long rise, the stock of SA public debt relative to GDP has more than doubled, with a further stark deterioration inevitable during 2020/21 (see graph below). To prevent a looming fiscal crisis, the National Treasury has proposed an ambitious fiscal consolidation strategy. This Research Note briefly reflects on how SA got itself into the fiscal mess and unpacks the international literature on the ‘how’ of consolidation to identify the features of successful debt stabilisation programmes. Treasury’s proposed consolidation strategy is judged against this blueprint.

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In 2020Q2, the FNB/BER Civil Confidence Index fell to only five. Sentiment improved to 11 in 2020Q3 and by a further five points to 16 in 2020Q4. Although better, the current index level means that the vast majority (more than eighty per cent) of respondents are dissatisfied with prevailing business conditions.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) declined further to 50.3 index points in December 2020, down from 52.6 in November. This is the lowest level since July 2020. The reading just above 50 index points suggests that growth is levelling off in the manufacturing sector after solid month-on-month gains were recorded in the wake of April’s lockdown-induced plunge in activity.

After crashing to an all-time low of five at the height of the COVID-19-induced lockdown in the second quarter, the RMB/BER BCI increased noticeably further from 24 in the third quarter to 40 in the fourth quarter. Confidence rose in all the sectors making up the BCI. While the easing of lockdown restrictions in recent months has led to a resurgence in activity, the tempo of growth in 2021 and beyond remains highly uncertain.

The FNB/BER Consumer Confidence Index (CCI) increased from -23 to -12 in the fourth quarter. The sudden outbreak of the COVID-19 pandemic and subsequent severe economic restrictions sent the CCI crashing from an already depressed level of -9 in the first quarter to a 35-year low of -33 during the second quarter, but the CCI has now regained most of its lost ground. Nevertheless, the latest reading of -12 constitutes the lowest festive season CCI reading since 2015.