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Finance Minister Tito Mboweni has warned of a fiscal crisis looming for South Africa, which was already in recession before the coronavirus pandemic exacerbated its economic slowdown.
If national banks and institutions remained the largest holders of South African bonds, a fiscal crisis could spread to banks and the financial system, said Mboweni, reported by Bloomberg, citing Fin24.
If South Africa does not take action, it could provoke a crisis from 2024, the finance minister said, pointing to 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 deeply in debt and seemingly out of ideas.
His medium-term budget, due to be presented at the end of October, would not be popular as it would “deal” with problems like the heavily indebted national airline and other state-owned companies, 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,” reported the City Press.
Speaking to the publication, analysts described the ANC’s proposed plan to facilitate economic growth after the impact of Covid-19 as “a list of items without strategic thinking.”
The ANC reportedly presented the National Council for Economic Development and Labor (Nedlac) economic recovery plan at the meeting, which was described by Communist Party of South Africa spokesman Alex Mashilo as lacking any form of strategy.
“I don’t want to sound so difficult, but we may not know what a plan is and what a strategy is,” he said.
The founding director of the Center for Economic Development and Transformation, Duma Gqubule, told 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 elements mentioned in the economic recovery plan have not been calculated.”
There is reportedly no mention of macroeconomic, monetary or fiscal policy, which he said was concerning considering the severe damage caused 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 national lockdown has seen South Africa’s expanded unemployment rate accelerate to 42% by the second quarter of 2020.
Results from the latest quarterly labor force survey for the second quarter of 2020 show that up to 2.2 million jobs were lost during the period.
GDP also decreased a little over 16.4% between the first quarter and the second quarter of 2020, resulting in an annualized growth rate of -51%.
Former statistician general Pali Lehohla warned that the government must find a sustainable way to tackle the unemployment crisis.
“If you look at the State of the Nation Address at the beginning of the year, the president said that 200,000 jobs will be created per year. That gives you just two million jobs in 10 years.
“Now, at the time of the coronavirus, the question is: what is the promise and what is the basis of that promise? What is the evidence around that promise and what is the roadmap for executing on that promise? “Lehohla said.
Preserve and create jobs
To preserve existing jobs and create new ones, South Africa will focus on an infrastructure-based strategy as part of its primary coronavirus recovery plan, President Cyril Ramaphosa said this week.
In a virtual speech after an ANC lekgotla on Monday, the president said that this infrastructure plan will include investments in energy, water, public transportation 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 various areas,” he said.
Key areas include:
- Strengthening of energy security;
- Localization through industrialization, including a local “prosperous” industrial base;
- Strengthening of food security;
- Investment and delivery of infrastructure that meets the objectives of the PND;
- Tourism support;
- Green economy interventions;
- Public employment programs;
- Gender equality and economic inclusion of women and youth;
- Macroeconomic policy interventions.
“By addressing these key areas of economic focus, the ANC supports a phased approach to our economic recovery,” said Ramaphosa.
The president said the first phase focused on saving lives and included a massive health response.
The second phase focused on saving livelihoods and included support for households and businesses, including various social and business grants.
“In the third phase, we are going to implement a reconstruction and recovery program. The ANC will guide the government’s work, working with the social partners to generate higher rates of economic growth, investment and job creation.
“Our goal is to radically transform our society to be truly non-racial, non-sexist, and more economically inclusive.”
Ramaphosa said that the country’s reconstruction and recovery will be driven by infrastructure, with a focus on energy sector reform and security.
It will also include large-scale investments in: water and sanitation; lane; ports; roads and bridges; human settlements; Health; education and skills development; digital infrastructure; and public transportation.
Read: Ramaphosa outlines ANC’s plan for South Africa
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