Finance minister Tito Mboweni has warned that a fiscal crisis looms for South Africa which was already in a recession before the coronavirus pandemic exacerbated its economic slowdown.
If domestic banks and institutions were to remain the largest holders of South African bonds, a fiscal crisis could spread to banks and the financial system, Mboweni said, reported by Bloomberg, citing Fin24.
Failure by South Africa to take measures could bring on a crisis as early as 2024, the finance minister said, highlighting the economic situation in Argentina as an example.
Argentina was facing a third year of recession in 2020 even before Covid-19 hit, with the country deep in debt, and seemingly out of ideas.
His mid-term budget, due later in October, wouldn’t be popular as it would “deal with” issues like the heavily indebted national airline and other state-owned enterprises, Mboweni said.
Meanwhile, an economic recovery plan presented at a cabinet meeting earlier this week by the ANC, has been described by analysts as “terrible, archaic, and disturbing”, City Press reported.
Speaking to the publication, analysts described the plan that was proposed by the ANC to facilitate economic growth following the impact of Covid-19 as “a list of items with no strategic thinking”.
The ANC reportedly presented the National Economic Development and Labour Council (Nedlac) economic recovery plan at the meeting, which was described by SA Communist Party spokesperson Alex Mashilo as lacking any form of strategy.
“I don’t want to come across as hard, but maybe we don’t know what a plan is and what a strategy is,” he said.
Centre for Economic Development and Transformation founding director Duma Gqubule told the City Press that the plan is virtually non-existent.
“It looks like it was written by an intern,” Gqubule said. “At least 95% of the items mentioned in the economic recovery plan have not been costed.”
There is reportedly no mention of macroeconomic, monetary, or fiscal policy, which he said was concerning considering the severe damage done by the Covid-19 pandemic to the local economy.
Jobs, jobs, jobs
Increasing job losses and the overall negative impact on the economy of the nationwide lockdown has seen South Africa’s ’s expanded unemployment rate accelerate to 42% for the second quarter of 2020.
The latest Quarterly Labour Force Survey Quarter 2: 2020 results show that as many as 2.2 million jobs were lost over the period.
GDP also declined by just over 16.4% between the first quarter and second quarter of 2020, resulting in an annualised growth rate of -51%.
Former statistician-general Pali Lehohla warned that the government needs to come up with a sustainable way of addressing the unemployment crisis.
“If you look at the State of the Nation Address at the beginning of the year, the president said that there will be 200,000 jobs created per year. That gives you only two million jobs in 10 years.
“Now at the time of coronavirus, the question is: what is the promise and what is the basis for that promise? What is the evidence around that promise and what is the roadmap to execute that promise?” said Lehohla.
Preserve and create jobs
To both preserve existing jobs and create new ones, South Africa will focus on an infrastructure-led strategy as part of its primary coronavirus recovery plan, said president Cyril Ramaphosa this week.
In a virtual address after an ANC lekgotla on Monday, the president said that this infrastructure plan will include investments in energy, water, public transport and other areas.
“The path and speed of economic recovery will depend on many different factors, and the lekgotla developed criteria and timelines to guide the government’s actions in a number of areas,” he said.
Key areas include:
- Strengthening energy security;
- Localisation through industrialisation – including a ‘thriving’ local industrial base;
- Strengthening food security;
- Infrastructure investment and delivery that meets the NDP goals;
- Support for tourism;
- Green economy interventions;
- Public employment programmes;
- Gender equality and economic inclusion of women and youth;
- Macro-economic policy interventions.
“In approaching these key economic focus areas, the ANC supports a phased approach to our economic recovery,” Ramaphosa said.
The president said that the first phase focused on saving lives and included a massive healthcare response.
The second phase focused on saving livelihoods and included support for households and businesses – including various social and businesses grants.
“In the third phase, we are going to implement a programme of reconstruction and recovery. The ANC will guide the work of government, working with social partners to generate higher rates of economic growth, investment and job creation.
“Our aim is to radically transform our society to make it truly non-racial, non-sexist and economically more inclusive.”
Ramaphosa said that the country’s reconstruction and recovery will be infrastructure-led, with a focus on energy sector reform and security.
It will also include large-scale investment in: water and sanitation; rail; ports; roads and bridges; human settlements; health; education and skills development; digital infrastructure; and public transport.