‘President Cyril Ramaphosa’s additional economic support package to address the fallout on the economy from Covid-19 represents a highly substantial raft of measures designed to assist distressed businesses, households and individuals, adding up to about 10% of South Africa’s GDP.”
This is according to Prof Raymond Parsons, a well-known economist and academic from the North-West University (NWU) Business School.
“The President’s statement recognises that the economic and human costs associated with a seriously disrupted economy as a result of the Covid-19 lockdown have been rising rapidly and that further action is necessary,” he adds.
According to Prof Parsons the economic decisions required now need to enjoy the same degree of urgency as the public health decisions that have to be taken.
“The 2020 economic outlook for South Africa is one of deep recession, business failures and rising unemployment. The economic support package now revealed, although substantial, will only cushion some of those outcomes. A controlled phasing out of the lockdown soon must also be an important part of restoring economic and business activity in the months ahead, and must go in tandem with other economic remedies,” he says.
He adds that the commitments made in this economic support package will nonetheless also create an even bigger challenge to South Africa’s public finances.
“Even prior to Covid-19 the country’s public finances were under great strain and the additional spending and borrowing that will now arise will inevitably see debt ratios deteriorate even further.
“This will put greater emphasis not only on the urgent reprioritisation of government spending and away from lesser priorities - such as dysfunctional state-owned enterprises like SAA - but also on skilful debt management over the next couple of years.”
To the extent that further borrowing is need to finance the new Covid-19 commitments, Prof Parsons says it is nonetheless welcome that government is prepared to tap into emergency financial facilities from multilateral institutions like the World Bank and the IMF. “If South Africa has to incur more debt it should do so as cheaply as possible.”
He says the President rightly emphasised the need to distribute and implement the financial assistance package as rapidly as possible.
“Every rand counts. Given the country’s poor track record on delivery, there are many issues that lie between committing money and having it effectively delivered in South Africa. It remains a big challenge, as even some other countries have found, to inject unprecedented large scale ‘life support’ financial and other assistance to heavily distressed households, individuals and businesses. More than ever before, time is of the essence to save the economy.”
Looking beyond Covid-19, Prof Parsons says it is now even more imperative that inclusive pro-growth reforms that will lift the growth rate, reduce unemployment and improve tax revenues, be expedited and implemented sooner rather than later.
“Post-Covid-19 South Africa needs to eventually break out of its ‘low growth trap’, without falling into a ‘debt trap’. Hence both short term support measures and longer term inclusive growth policies must point in the same direction if the country is to build a ‘new economy’ and look ahead to renewed prosperity.”
