By: Lizzy Ofusori
The term “fiscal cliff” refers to a situation where a government faces a significant drop in revenue combined with increased expenditure, leading to a sharp deterioration of its fiscal position. This situation can arise from various factors, such as economic downturns, unsustainable debt levels, or inadequate budgetary policies. South Africa’s economy has exhibited dismal performance since its remarkable transition to democracy (Mail & Guardian). The country’s economic growth rate has also decreased from approximately 2.5% annually to 1.5% (as reported by Professor Ricardo Hausmann (Wits University)). Likewise, Mail & Guardian reports that the country will have had 18 years of declining average living standards by the end of 2025.
Additionally, the Institute for Economic Justice (IEJ) projects a revenue deficit of R67.2 billion for the remaining period of 2023/24 unless decisive actions are taken. Furthermore, the 2023 budget also had unrealistic spending goals, anticipating a reduction in non-interest expenditure for the fiscal year 2023-24 as highlighted by the Mail & Guardian. South Africa is currently facing significant challenges with high levels of unemployment, poverty, and inequality. In the face of such high unemployment and poverty, Finance Minister Enoch Godongwana is confronted with significant pressure to expand the South African welfare state (Prof. Philippe Burger of the University of the Free State). Furthermore, several commentators and activists advocated implementing a permanent Basic Income Grant (BIG) to replace the Social Relief of Distress Grant (SRDG). However, Finance Minister Enoch Godongwana opted not to introduce a BIG, instead extending the SRDG (R350 per month) by another year. South Africa is at risk of experiencing a severe financial crisis, commonly referred to as a fiscal cliff, which has substantial consequences for the country’s social and economic progress in 2024.
Implications for socioeconomic
The following section briefly discusses the implication of fiscal cliffs for socioeconomic development in South Africa.
In conclusion
A fiscal cliff in South Africa would have significant implications for socioeconomic development, potentially leading to economic instability, reduced government spending on essential services, decreased investor confidence, social unrest, higher borrowing costs, and the need for structural reforms. Addressing these challenges will require concerted government, civil society, and the private sector efforts to ensure inclusive and sustainable development. The government must prioritize fiscal reforms to restore fiscal sustainability, stimulate growth, and protect social welfare programs. Additionally, the government needs to foster an enabling environment for investment and business growth through regulatory reforms, infrastructure development, and support for innovation. Likewise, civil society can advocate for policies prioritizing social equity, protecting vulnerable citizens, and promoting transparency and accountability in public finances. Also, the private sector can collaborate with the government and civil society to identify opportunities for public-private partnerships (PPPs) and innovative financing mechanisms to fund critical infrastructure projects and service delivery initiatives. By leveraging the expertise and resources of the private sector, the government can enhance the efficiency and effectiveness of its fiscal intervention.
Dr. Lizzy Oluwatoyin Ofusori is an academician and a researcher. She writes in her capacity.