SMMEs and the poor will be hit most by the government borrowing

Small business, ordinary South Africans and the poor will suffer the most from the government’s borrowing costs.
This was revealed by Finance Minister Tito Mboweni during his Medium Term Budget Policy statement on Wednesday in Parliament.
He said the government was borrowing at an astounding rate of R2.1- billion per day.
“We must rally behind fiscal rehabilitation and growth. An uncontrolled increase in borrowing costs would harm small business, ordinary South Africans and the poor the most,” he warned.
Mboweni explained that the more government borrowed, the more it paid to service its debt.

He said South Africa needed to be careful to avoid the fate of countries like Argentina and Ecuador that defaulted on their debt this year.
“Countries that find themselves in default see sharp GDP contractions and currency depreciations. On current trends, more of our taxes are being transferred to bondholders rather than to critical services of our people.
“We cannot sustain the current levels of debt particularly as increasing borrowing costs were diverting resources that should be going to economic and social development,” he said.
He promised that government could turn the current situation around and he recalled how in 2009, the country’s debt was at 31.5 percent of the GDP and the real yield on government debt was three percent, “every rand of government spending got us R1.60 in GDP”.
“Now, however, at such elevated real interest rates, every additional rand gets us less than a rand of GDP. It may even subtract GDP, leaving us poorer and more indebted than before.”
He said government’s job was not to tremble in fear at the storm blast neither at plagues nor at wide open mouth of the hippopotamus.
He added that as the government borrowed more, it paid even more to service the debt. “We also have not been spending on infrastructure which creates long-term growth.”
Mboweni added that government intended to instil confidence in the country following the uncertainty during the lockdown.
These included making it easier to do business, creating stable and predictable policies and embracing a sustainable future.
“Amongst other things, we will make it easier to do business. We must remove the needlessly complex red tape that increases the costs of doing business,” Mboweni also said.
“The future of work is now different in the post Covid-19 world. The crisis has highlighted and unfortunately widened inequality.”
Government was also planning on spending money on creating jobs and improving infrastructure.
This would include measures to support new projects including hospital projects in KwaZulu-Natal and the Western Cape.
Also, 12 harbours would be developed in the Eastern Cape, KwaZulu-Natal, Northern Cape and the Western Cape.

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