Part 1: Understanding the concept of "fiscal sustainability" in the post-Corona world

Part 1: Understanding the concept of “fiscal sustainability” in the post-Corona world

7 August 2020

Tshepiso Moahloli, Owen Willcox, Ian Stuart, Mamokete Lijane, Brian Kantor, Xavier Debrun, Lucio Castro

Economic theme: Growth, Development & Structural Constraints, Macroeconomic Analysis Models, Macroeconomic Policy Coordination, Public Finance

Event type: Dialogue

Keyword: Banking Regulation, budget, COVID-19, Development, economic growth, fiscal policy, government revenue, Other Macroeconomic Variables, Policy, productivity, Public Utility, Regulation, South Africa

JEL Code: E5, E52, E6, E62, H12, H20, H63, O12, O23, O4

Location: Online

Debt sustainability is equivalent to government solvency and from a policy perspective, the public finances are considered sustainable if a government is credibly able to maintain its expenditure policies without defaulting on its debt. Essentially, losing fiscal sustainability means that the social and economic programs of government are unaffordable, and the benefits of the budget enjoyed today will not all be available in the future. Most macroeconomic analysis of fiscal sustainability abstracts away from politics, yet fiscal policy is a fundamentally political affair. South Africa has seen its debt to GDP ratio more than double since the onset of the financial crisis in 2008, reaching 64 percent of GDP at the end of 2019 fiscal year.

How do we define fiscal sustainability in South Africa?
Is fiscal sustainability an inviolable priority for fiscal policy? If yes, how do we reconcile it with the short and medium-term demands of the economic collapse? And if no, how do we avoid fiscal and economic collapse over the medium to longer-term?
How does one achieve fiscal sustainability in this political economy environment?

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