{"id":108090,"date":"2018-01-15T22:47:43","date_gmt":"2018-01-15T20:47:43","guid":{"rendered":"http:\/\/www.myza.co.za\/why-zumas-free-higher-education-plan-will-cripple-south-africas-finances-the-conversation\/"},"modified":"2018-01-15T22:47:43","modified_gmt":"2018-01-15T20:47:43","slug":"why-zumas-free-higher-education-plan-will-cripple-south-africas-finances-the-conversation","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/why-zumas-free-higher-education-plan-will-cripple-south-africas-finances-the-conversation\/","title":{"rendered":"Why Zuma’s free higher education plan will cripple South Africa’s finances | The Conversation"},"content":{"rendered":"

Why Zuma’s free higher education plan will cripple South Africa’s finances<\/a>: <\/p>\n

<\/span> REUTERS\/Siphiwe Sibeko<\/span><\/span><\/figcaption><\/figure>\n

South Africa\u2019s fee-free higher education initiative, controversially introduced by President Jacob Zuma in the dying weeks of 2017, will plunge the country into a deeper financial crisis if it isn\u2019t adjusted one way or another. <\/p>\n

Days after Zuma made his surprise announcement, Ramaphosa was elected president of South Africa\u2019s ruling party, the African National Congress. He is set to become the country\u2019s president when Zuma\u2019s term expires if the ANC wins the country\u2019s 2019 national elections.<\/p>\n

It\u2019s now for Zuma\u2019s successor Ramaphosa to do the tricky tampering. He will need to be politically and financially adept to manage this situation. He can\u2019t simply reverse a populist decision and he clearly won\u2019t be able to meet it fully without serious adjustments to the country\u2019s finances. <\/p>\n

Zuma\u2019s plan seeks to provide fee-free tertiary education to students from households with a combined annual income of less than R350,000 with immediate effect. Estimations suggest that this covers 90% of students in the higher education system.<\/p>\n

This is certainly a noble idea. But Zuma\u2019s rushed unilateral decision ignored all sensible views that it can\u2019t be done in the way he is proposing. Zuma ignored the National Treasury headed by Finance Minister Malusi Gigaba, whom he handpicked. And he disregarded the views of the Heher Commission he appointed to look into the matter, which stated emphatically that South Africa cannot afford fee free education.<\/p>\n

The cost of this proposal could be disastrous for a country that\u2019s already burdened by significant debt considering that Zuma\u2019s promise will cost the country between R15 billion and R50 billion per year. At current debt levels, South Africa\u2019s public finances are already highly constrained. The country is struggling to fill the R50.8 billion budget deficit, which is projected to rise to R89.4 billion by 2020. This is approximately -4.75% of GDP, the highest since 2009 and more than the average of -3.26% over the period from 1989 to 2017.<\/p>\n

The sovereign debt situation<\/h2>\n

Since the dawn of democracy, South Africa has become more reliant on sovereign bond issuance to support its budget. South Africa\u2019s sovereign bonds are issued by the government through the South African Reserve Bank primarily to raise funds for large capital projects. <\/p>\n

The government\u2019s debt has been rising steadily for the last decade. It reached a record high of R790 billion (51% of GDP) in the second quarter of 2017, up from R726 billion in the first quarter of 2017. It is expected to rise even further, with some estimates suggesting it will shoot up to more than R2 trillion (60% of GDP) by 2020. This is far higher than the average R390 billion from 2002 until 2017. <\/p>\n

At this debt level, the government is paying approximately R13 of every R100 (13%) collected in revenue as interest payments to sovereign lenders. This figure is much higher than expenditure in general public services (5.5%), defence and security (4.8%), police services and (6.7%), basic education (7.3%), tertiary education (9.2%), and economic infrastructure (6.8%). <\/p>\n

The government debt servicing costs for 2018 are estimated at R183 billion, which is forecasted to rise to R223 billion by 2021. This means government debt repayment is the fastest growing expenditure item of the budget. The implication is that in the next three years the government will be spending more money on repaying its debts than on key service delivery priorities such as social and economic development. <\/p>\n

It\u2019s therefore clear that the country can\u2019t afford to add another R15 billion to R50 billion to expenditure. <\/p>\n

Available options<\/h2>\n

Funding for Zuma\u2019s fee-free plan will either have to come from tax hikes (including an increase in the Value Added Tax rate), significant austerity, budget reallocation\u2019s or additional borrowing. <\/p>\n

With an economy stuck at sub-optimal growth, facing more rating downgrades, and a significant tax shortfall in the near future, the Ramaphosa administration may face the political inconvenience of having to explain why Zuma\u2019s education announcement has to be retracted, amended, or delayed.<\/p>\n

Retracting or delaying the policy aren\u2019t options because either would likely spark civil unrest. But populist policies such as these condone financial indiscipline at the expense of much needed fiscal consolidation. The consequences will be severely damaging to the country\u2019s development for many years. <\/p>\n

It is vital that the government tackles the escalating sovereign debt by drawing up a proper implementation strategy. This needs to be in line with austerity measures to allow fiscal consolidation to reduce the widening budget deficit.<\/p>\n

It must do this in a way by balancing three things: economic growth, a smaller fiscal deficit and meeting increasing social demands. Instead of trying to raise funding for free higher education the government should rather consider disposing unessential state assets, reducing government debt guarantees to state owned companies, and clamping down on corruption and wasteful expenditure. <\/p>\n

Fiscal cliff<\/h2>\n

If the fiscal situation continues to deteriorate, South Africa risks having its domestic bond ratings downgraded to sub-investment grade by all the three international credit rating agencies. This would be disastrous for the country, which has already been subject to downgrades on its foreign denominated debt. <\/p>\n

Moody\u2019s is the only international rating agency that hasn\u2019t downgraded South Africa to \u201cjunk status\u201d. If it does so to the country\u2019s sovereign currency rating, the country\u2019s sovereign bonds would be excluded from the Citigroup\u2019s world government bond index. If this happens many foreign asset managers with investment grade mandates would dump the country\u2019s domestic bonds. South Africa\u2019s bond yields will shoot up, further escalating debt servicing costs. Similar circumstances have led countries such as Brazil, Cyprus, and Greece into vicious debt cycles. <\/p>\n

Zuma may have lobbed a populist hot potato at the ANC elective conference. But it\u2019s ordinary South Africans whose fingers will be burnt.<\/p>\n

\"The <\/p>\n

Sean Gossel receives funding from the University of Cape Town. <\/span><\/em><\/p>\n

Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.<\/span><\/em><\/p>\n

Source:<\/strong> The Conversation \u2013 Articles (AFRICA)<\/a><\/small>
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Read more on The Conversation<\/a>.<\/p>\n

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Why Zuma’s free higher education plan will cripple South Africa’s finances: REUTERS\/Siphiwe Sibeko South Africa\u2019s fee-free higher education initiative, controversially introduced by President Jacob Zuma in the dying weeks of 2017, will plunge the country into a deeper financial crisis if it isn\u2019t adjusted one way or another. Days after Zuma made his surprise announcement, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[4584],"tags":[4635,8890,29001,45,22831,3053,6116,2474,3576,3471],"class_list":{"0":"post-108090","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-africa-news-2","7":"tag-africas","8":"tag-conversation","9":"tag-cripple","10":"tag-education","11":"tag-finances","12":"tag-free","13":"tag-higher","14":"tag-plan","15":"tag-south","16":"tag-zumas","17":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/108090","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=108090"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/108090\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=108090"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=108090"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=108090"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}