IN 2012, Ghana’s government took the decision to increase public sector wages by about 20% in what it called a "single spine" wage reform. This saw the wage bill rise about 47%, according to the International Monetary Fund. By the middle of last year, Ghana was facing a fiscal crisis, with a deficit of 12% and government debt nearing 60% of GDP.

As Finance Minister Nhlanhla Nene delivered his maiden budget last week, I was reminded of this situation, especially amid talks of demands for a 15% pay increase for SA’s public servants.

Nene sounded some very important warnings that have long-term implications. Important choices must be made, and swift action taken. As Nene put it: "Governments everywhere face difficult choices because the gap between what is required and what can be afforded is very wide. And so we have to be steadfast in our resolve to do more, together, with less."

With these words, he outlined a key problem across many countries, and the danger faced by emerging countries. Countries such as Ghana, Nigeria and Kenya are having to do more with less, and face a dangerous path if they do not. Global economic stability, and a slow and uneven recovery, present intense challenges for policy makers.

It seems the mantra of countercyclical spending, which is about spending more in bad times and less in good times, is being abandoned. This is mainly because the bad times are proving rather resilient. Half a decade has passed since the epicentre of the financial crisis, which precipitated the global economic meltdown, and there is still no end in sight to the tough times.

While Nene suggested in an interview with Bloomberg that there is a need to postpone some spending, the details are critical. Much of government spending is necessary to propel economic growth and job creation, which are critical for the state’s purse, given the need for more taxes and spending.

Mistakes have been made, and must not be repeated. Ghana failed to see it was on an unsustainable fiscal path, and overestimated growth and the fortunes brought about by the production and export of oil. Its revision of public sector salaries has placed it on a higher level of spending, and it is struggling to contain the fiscal deficit amid revenue challenges. Commodity prices such as gold — from which Ghana derives a fair chunk of its fiscal revenues — remain fragile, while the oil outlook continues to weaken. Debt is now comfortably above 50% of GDP and the budget deficit stubbornly above 5% as the government keeps missing revenue targets.

Nigeria faces a similar fate as oil prices continue to decline. Foreign exchange reserves have fallen by about $600-million compared with a month ago, and by $1-billion compared with three months ago. Foreign exchange reserves represent a treasured fiscal buffer in Nigeria, and act as a stabilising and confidence measure for the naira. But the oil price is falling closer to the budget’s benchmark level of $77.5 a barrel, so there will be a need for further fiscal consolidation.

All of these governments must spend money on infrastructure and social investment to meet the promises of a better life for their citizens, and to support sustainable economic prosperity.

While Nene suggested in an interview with Bloomberg that there is a need to postpone some spending, the details are critical. Much of government spending is necessary to propel economic growth and job creation, which are critical for the state’s purse, given the need for more taxes and spending.

As Nene put it, we have reached a turning point, and "fiscal consolidation can no longer be postponed". This is true because this fragility in government finances is a danger shared in the region and the continent.

If SA slips, it will most likely take down its peers, such as Nigeria and Ghana. If Ghana fails at managing its very fragile fiscal condition, the ripple effects of a collapse will extend to Nigeria and as far as SA.

We are now a region called Africa. Comparisons are drawn, even if they are wrong, between African countries. A collapse in any will most likely create contagion. We saw this in South America when Argentina defaulted on its debt, sending emerging markets into a tailspin as investors fled.

This fiscal fragility must thus be attended to, but a strong resolve to do something about growth is still needed.

In his speech, Nene mentioned the National Development Plan (NDP) more than half a dozen times. This, by all accounts, suggests the government’s resolve to implement the ambitious roadmap.

Many people have said the NDP is lacking in detail and needs to be more coherent. We could wait for a coherently astute document that suits the interests of everyone, or we could get going with the policy the Treasury has the power to make in its budgets.

What is clear is that we are out of time. Governments must work to contain expenditure while at the same time investing heavily and promptly into productive infrastructure to ensure growth and sustainability.

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