SA economy is on its knees
The Covid-19 outbreak has adversely contributed to the already dire economic situation facing the country, in part owing to a recession that impeded the much needed economic growth rates in 2019 plus the recent decision by international rating agencies to downgrade South Africa’s investment grade to a junk status. These developments took place in a context of the growing levels of poverty, inequality and unemployment rate of 29% (about 10 million unemployed individuals) besetting the country.
The COVID-19 outbreak prompted the government to take a myriad decisions in response to managing the effects of this pandemic on public health care and also imposing restrictions on movement of people through a lockdown. Since the pandemic presents a dual impact on public health and the economy, President Ramaphosa announced an economic stimulus package with a view to cushion the negative effects of the pandemic on the economy flowing from the lockdown that commenced on 27 March 2020. The stimulus package is estimated to be R500 billion ($26.1 billion) and it is largely dedicated to address the socio-economic impact of COVID-19. This stimulus package is financed in part by, government contribution of R130 billion derived from reprioriatisation of the existing national budget presented by the Minister of Finance, Tito Mboweni in February 2020, additional R20 billion for public infrastructure allocated for municipalities including R200 billion loan guarantee scheme for banks to be provided by the South African Reserve Bank, R45 billion from UIF as well as R50 billion for social grants.
The remainder of the stimulus package will be financed through COVID-19 health grants currently offered by International Finance Institutions (IMF, World Bank, African Development Bank and BRICS New Development Bank) to all its member states. President Ramaphosa hinted in his address to the nation that the government intends approaching these institutions to bolster the government’s stimulus package.
Duma Nqubule, a Business day economic columnist assets that a fiscal stimulus refers to the injection of new money into the economy, and thus, the national treasury’s net contribution to the stimulus package is only R30 billion or 0.6% of the country’s GDP. Within the G20 group of the largest and emerging market economies, the average spending is 2.9% of GDP (International Monetary Fund Fiscal Report, 2020). Thus, this reflects a paltry contribution by the South African government compared to its counterparts, for instance, the UK government’s stimulus package significantly provides for a wage subsidy for all small businesses operating in the hospitality, retail and tourism sector for the duration of their lockdown. The bigger chunk of the $2 trillion announced by the U.S. government is channeled towards supporting small medium enterprises to meet their payroll utility and insurance expenses in order to reduce layoffs.
On 01 May 2020 marking an international workers’ day, the International Labour Organisation (ILO) said that the grim situation facing the world’s most vulnerable workers should lead governments to urgently extend their bailout programmes to include targeted and flexible measures to support workers and businesses especially SMEs and those in the informal economy.
In conclusion, the COVID-19 pandemic presents an opportune time for all social partners, notably, the government, business, community structures to pause, introspect, review and re-examine old economic paradigms, models, interventions and contemplate the overhauling of the entire 20th century economic architecture in accordance with the ensuing new economy eloquently pronounced by President Ramaphosa on 23 April 2020 in his address to the nation.
21 May 2020