South Africa’s peaceful political transition was one of the most remarkable political feats of the past century. The African National Congress (ANC) has been driving the policy agenda since 1994. Local government elections will be held in October 2016.
A sustained record of macroeconomic prudence and a supportive global environment enabled South Africa’s gross domestic product (GDP) to grow at a steady pace for the decade up to the global financial shock of 2008-2009. Improvements in the public budget management system and efforts to restore the macro fundamentals by National Treasury played an essential role.
Due to consistent and sound budgetary policies South Africa has been able to tap into international bond markets with reasonable sovereign risk spreads. The 2012 Open Budget Index prepared by the International Budget Partnership ranked South Africa second among 94 countries surveyed. In 2014 and 2015 however, South Africa’s ratings have been downgraded by most rating agencies citing poor growth prospects and rising government debt as well as high deficits on the current account.
Pro-poor orientation of public spending has contributed to improved social development indicators in a range of areas. .Millennium Development Goals (MDG) on primary education, gender, several health indicators and environmental sustainability are likely to be achieved. Social insurance programs currently cover around 16 million people and, at 3.5% of GDP, are more than twice the median spending among developing economies.
Key Development Challenges
South Africa remains a dual economy with one of the highest inequality rates in the world, perpetuating inequality and exclusion. With an income Gini of around 0.70 in 2008 and consumption Gini of 0.63 in 2009, the top decile of the population accounts for 58% of the country’s income, while the bottom decile accounts for 0.5% and the bottom half less than 8%.
Life expectancy, after falling dramatically from 62 years in 1992 to 53 years in 2010, recovered to 62 years in 2014. The recent recovery was in large part due to the rapid expansion of the antiretroviral treatment programs to fight HIV/AIDS. And it is supported by declines in both adult and infant mortality. The poor are particularly vulnerable, and high HIV and AIDS infection rates, as well as TB infections, have severely strained the health system, contributing to the poor health indicators
Recent Economic Developments. South Africa’s growth is stuck in low gear with real GDP growth estimated at 1.3% in 2015/16 and projected at 0.8% for 2016/17 due to a combination of domestic constrains and external headwinds arising from the fall in commodity prices and slowdown of the Chinese economy. The weak growth performance has exacerbated already high unemployment, inequality, and macro vulnerabilities.
The weak economic outlook has made the fiscal outlook more challenging. As part of the budget Law 2016/17, the government announced an adjustment package of expenditure savings, for one-third, and tax measures, for two-third, to reduce the budget deficit from 3.9% of GDP in 2015/16 to 3.0% of GDP in 2017/18 and stabilize the gross debt burden at about 51% of GDP, helping minimize pressures on the sovereign rating.
Government Policy Priorities
The current administration is acutely aware of the immense challenges to accelerate progress and build a more inclusive society. Its vision and priorities to address them are outlined in the 2030 National Development Plan (NDP) which outlines two main strategic goals to double the GDP by 2030 and eliminate poverty, and reduce inequality, as measured by the income Gini coefficient, from 0.70 to 0.60.
To achieve these, the NDP lists several critical factors for its successful implementation; focused leadership that provides policy consistency; ownership of the plan by all formations of society, strong institutional capacity at technical and managerial levels, efficiency in all areas of government spending including management of the public service wage bill and making resources available for other priorities, and prioritization and clarity on levels of responsibility and accountability at every sphere of government as well as a common understanding of the roles of business, labor and civil society.
Last Updated: Apr 12, 2016