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South Africa is Living Beyond its Means

The country’s financial stability is shaky, according to the SA Reserve Bank. “If the planned fiscal consolidation is unsuccessful, government could face debt distress with adverse implications for the broader economy,” the central bank said in a financial stability review report on Tuesday.  The Treasury plans to reduce expenditure by about R300bn over the next three fiscal years as it targets a primary budget surplus in 2026, when debt is expected to peak at 95.3% of GDP. But the finance minister Tito Mboweni’s efforts to reduce a government salary bill that’s surged by 51% since 2008 is facing a backlash from politically influential labour groups. Without an agreement, SA could face a sovereign debt crisis. The risks flagged by the central bank include further deterioration of the creditworthiness of banks and insurers holding sovereign debt and the government’s limited capacity to act as a backstop in the event of financial sector distress. SA descended deeper into junk territory last week when Moody’s Investors Service and Fitch Ratings lowered the country’s credit ratings. With banks capped at the level of the sovereign, the likes of Standard Bank and FirstRand will probably also see their debt assessments deteriorate.