The Covid-19 pandemic has led to a severe global economic crisis, the extent and duration of which is still uncertain.
With South Africa’s economic models not being well-suited to assess a global pandemic, and with conditions changing rapidly, the South African government has lamented that the shape of the global economic recovery will depend on both progress in ending the pandemic, as well as the pace and magnitude of fiscal and monetary policy measures.
With South Africa already facing numerous economic difficulties that compound the impact of the public health emergency, besides others, forecasters expect a recovery in economic growth to only start in 2021.
Notwithstanding the difficult circumstances, the South African government has acted decisively to prioritise the health and lives of its citizens.
However, considering the economy was already weak before the emergence of the pandemic, government’s immediate priority is to use the joint levers of fiscal and monetary policy to support economic activity and alleviate hardship.
As such, government has adopted a risk-adjusted approach to reopening the economy, with the initial easing of lockdown measures to start on May 1.
Prior to this, on April 30, government provided more clarity surrounding the economic relief measures in response to Covid-19. The document sets out a three-phase approach to government’s economic interventions over the next 18 months – a period during which the most severe effects of the public health crisis are expected to be resolved, according to government.
However, government emphasised that this must not compromise fiscal sustainability, “which will ensure South Africa’s long-term prosperity”.
In the coming months, a special adjustment budget will set out a range of economic reform proposals and measures to stabilise public finances.
Here, the document refers to the R500-billion fiscal support package that combines revenue and spending measures, as well as loan guarantees, totalling about 10% of the country’s gross domestic product.
This amount, while larger than equivalent support measures announced by other emerging markets, is “needed to ensure that productive economic capacity is not lost”, government said.
The National Treasury is also working closely with provinces and local government to coordinate spending across all spheres of government. In the months ahead, government’s response will shift towards helping support employment and investment, and to “position the economy for structurally higher growth”.
This will happen in three phases, the first of which will be the preservation of the economy through a set of immediate, targeted and temporary responses.
The second phase plans to recover from the immediate effects of the crisis by supporting investment and employment, while the third phase is a pivot to position the economy for the faster growth needed to restore the country’s long-term prosperity.
More detail is set out in the attached document, as published by government.