SA's finances a shambles and put pension funds at risk, says IRR

As the performance of SOEs drags the nation further into debt, the IRR warns that pensioners' savings could be under threat. Stock image.
As the performance of SOEs drags the nation further into debt, the IRR warns that pensioners' savings could be under threat. Stock image.

The Institute of Race Relations on Wednesday shared figures seemingly indicating severe economic decline in SA's finances, which it said put the millions of citizens' pension funds at risk.

Economist Mike Schussler said the country was heading towards a fiscal cliff and that a policy of prescribed assets was increasingly likely.

"Prescribed assets" means that pension fund managers could be forced by law to invest in certain sectors prescribed by the government.

“In present circumstances, pension fund managers would likely be forced to invest in government bonds to help the country meet its rapidly rising debt burden,” said the IRR.

The institute previously warned of a threat by the government to stipulate what the pension funds of about 16-million South Africans should be invested in.

Schussler said public debt for state owned enterprises (SOEs) had reached nearly 70% of GDP. This was a dramatic increase from 32% in 2010.

“Our danger lies in not addressing the fundamental overspending and growth issues that South Africa faces. Without real reform we will make South Africans poorer,” said Schussler.

He noted that the government's debt ratio had also been higher than those of its emerging-market peers.

Schussler said even the treasury’s own forecasts showed the situation was deteriorating markedly.

In February, Treasury predicted that the debt-to-GDP ratio would be about 60% in 2026/27. Six months later, this was forecast to be closer to 80% by 2026/27.

Schussler attributed the upward revision to a background of declining tax revenue.

The IRR also expressed concern at low economic growth. It said current trends on unemployment could reach 37.7% - up from the current 29.1% - by 2030, with expanded unemployment nudging 45%.

The institute said politicians had been under pressure to act, but were unlikely to approach the International Monetary Fund (IMF) for assistance.

“Far more likely would be a policy of prescribed assets, as the IMF would insist on reforms and accountability,” he said.

Marius Roodt, campaigns consultant at the IRR, said the institute opposed any policy of prescribed assets.

“It’s time the government makes the hard choices and cuts spending,” he said. "The public sector wage bill must be reduced drastically and we must stop propping up failing SOEs. We must also create an environment where jobs can be created and where businesses can flourish.”

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