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A master class on damage limitation
Few countries have been more affected by the coronavirus pandemic than South Africa. The country suffered a year-on-year GDP contraction of around 17% in the second quarter thanks to some of the world’s tightest lock-in and distancing restrictions.
Fortunately, these restrictions have paid off and the curve of rising infections has flattened, allowing the country to relax the lockdowns and allow its economy to begin to recover.
Nothing could have been done to fully offset the economic consequences of the economic shock delivered this year. But, under the leadership of Tito Mboweni, the South African government has provided businesses and citizens with a series of measures designed to support them during the lean season.
Low-income workers receive a tax subsidy, while the social benefit payments of vulnerable families have increased. For those workers who fall through the gaps in South Africa’s unemployment insurance fund, the government has provided a six-month grant for the unemployed.
The government has also done everything it can to help the SME sector, particularly small farmers and businesses operating in the troubled areas of tourism and hospitality, by providing a loan guarantee scheme to help support businesses. companies afloat until revenue recovers.
Mboweni also presided over the decision to turn to the IMF for emergency funds, raising $ 4.3 billion through its rapid assistance program. This decision came amid historic political reluctance, but analysts outside the country praised the move, saying it gives the country the best chance of achieving the fastest possible recovery.
Despite the challenges posed by the historic effect of the pandemic, Mboweni has done an excellent job limiting the damage. The drop in GDP, although severe, could have been much worse if it weren’t for the speedy response of the Ministry of Finance.
Analysts especially commended the speed with which liquidity support facilities were provided, shielding the economy from the worst of the collapse. “They have faced enormous challenges and the Ministry of Finance cannot hope to solve everything, but the success they have had, thanks to the speed of their actions, has been gratifying,” said an analyst from a Washington think tank.
Fortunately, the economy has started to recover in the third quarter and growth is expected to return 15% quarter-over-quarter, although this will only contribute to a small extent to offset the brutal 51% drop in the second quarter. The fact that this recovery takes place is largely due to the Mboweni recovery package.
