Pretoria: Although economic recovery is underway from the shock of the worst global financial crisis since the 1930s, observers are adamant that with persistent unemployment and many countries battling with tax evasion, the upcoming G20 summit in Saint Petersburg, Russia, is expected to be another test for world leaders.
South Africa, buoyed by its solid membership in BRICS (Brazil, Russia, India, China and South Africa), goes to the summit with the aim of pushing for better global coordination of efforts to reduce the economic burden that the crisis has handed to developing countries. Some analysts agree that while macroeconomic imbalances did not cause the financial crisis, they certainly fuelled it.
Russia, which is part of the BRICS economic grouping, will host the meeting of the G20 heads of state and government on 5 – 6 September.
Every year brings challenges, some old, some new, for summits to tackle. This year is no different. The meeting will have to resolve the sovereign fiscal crisis and uncertainties that are faced by certain parts of the world. It will also have to deal with financial market volatility following the crisis.
Economists say leaders have an opportunity to put their individual countries interests’ aside and work towards finding common solutions to the complex challenges facing the world. These include unemployment and the spiralling cost of living.
As G20 President, Russia has focused its work around three priorities, which are intended to promote growth through quality jobs and investment, growth through trust and transparency and growth through effective regulation.
Plan to tackle tax evasion
Tax evasion is another serious problem for most G20 countries and South Africa is no exception to this practice.
In July, the National Treasury introduced a new tax review committee and at the time, Finance Minister Pravin Gordhan said the committee should evaluate the South African tax system against the international tax trends. It had to look at principles and practices, as well as recent international initiatives to improve tax compliance and deal with the tax base erosion. Last month in Moscow, G20 ministers endorsed the plan on base erosion and profit shifting and the exchange of tax information.
In the national budget tabled in February, Gordhan said government would initiate a tax review this year “to assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability”. This is the discussion he is expected to take to his G20 counterparts this week.
Government has said given the pace of globalisation, the relatively modest economic growth after the 2008/09 economic recession, and the significant social challenges such as persistent unemployment, poverty and inequality, there was a need to review what role the tax system can play as part of a coherent and effective fiscal policy framework in addressing these challenges.
More global coordination needed
Pretoria has also made it clear that it wants to see better global coordination to tackle volatility in emerging markets caused by an expected scaling back of US monetary stimulus.
The rand, like the currencies of other developing economies, has reportedly taken a beating as investors pull money out of high-yielding but risky emerging markets, seeking to pre-empt the US Federal Reserve’s planned winding down of its bond-buying programme.
“Emerging economies like South Africa have benefitted from the actions of the Federal Reserve, as foreign investors have bought huge amounts of South African government bonds at fairly low yields and equities,” the Presidency said.
The prospect that the Federal Reserve will cut off these flows of funds has resulted in emerging market currency volatility, which has been yet another reminder of the risks and the potentially destabilising and negative effects that policies and shocks in major economies can have on other countries and regions.
“Decisions taken by countries based solely on their own national interest can have serious implication for other nations. There must be a greater recognition that we live in an interconnected world,” the Presidency said as President Jacob Zuma prepares to depart for Russia.
The solution to all these challenges – turbulence in financial markets, the fragile and uneven economic recovery – lies in better global coordination of efforts.
Meanwhile, BRICS members, who will meet on the side-lines of the G20 summit are also expected to further iron out details of the creation of a BRICS Development Bank agreed at a the bloc’s summit in Durban earlier this year.
South Africa’s membership of BRICS and its participation in the G20 has given many African countries some hope. The South African government says its seeks to use its participation in the G20 to promote and strengthen the interests of Africa and of the South, “on the understanding that, if managed carefully, the G20 does present meaningful opportunities for advancing much-needed global governance reforms and orienting the international development agenda”.