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THE International MBA - InfoBytes
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30 July 2020,

06 MAY 2020
Economic decisions need degree of urgency

by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.
The additional economic support package announced recently by President Cyril Ramaphosa to address the fallout on the economy from Covid-19 represents a highly substantial raft of measures designed to assisted distressed businesses, households and individuals, adding up to about 10% of SA’s GDP. 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.

The economic decisions required therefore now need to enjoy the same degree of urgency as the public health decisions that have to be taken. The economic outlook for SA in 2020 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.

The commitments made in this economic support package will nonetheless also create an even bigger challenge to SA’s public finances. Even prior to the Covid-19 SA’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 needed to finance the new Covid-19 commitments, 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 SA has to incur more debt it should do so as cheaply as possible.

The President rightly emphasised the need to distribute and implement the financial assistance package as rapidly as possible. And 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 here to save the economy.

And looking beyond Covid-19 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 SA is to build a ‘new economy’ and look ahead to renewed prosperity.

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