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South African President Cyril Ramaphosa has warned that “tough decisions and tough days lie ahead” as the country watches the economic fallout from the coronavirus pandemic.
In an address to the nation on Monday, Ramaphosa pointed out that businesses in all sectors had announced job cuts or total closures due to losses suffered since the the nation has strict lockdown measures in place March 26.
Aware of the economic impact of confinement, the government has begun to lift restrictionsbut South Africa now has 101,590 confirmed cases of Covid-19, the most on the continent, with 1,991 deaths as of Tuesday morning, according to Johns Hopkins University.
“For a country like ours, which was already facing an unemployment crisis and weak economic growth, tough decisions and tough days lie ahead,” Ramaphosa said.
“We urge that the difficult decisions to be made are made with care and with due consideration of the balance between corporate sustainability and worker livelihoods.”
He stressed the importance of continuing small business relief measures, including tax relief, debt restructuring, extended lines of credit and retail rental exemptions, as well as financial assistance. to poor households, but said these measures could go no further.
Ramaphosa argued that while the economic impact will extend far beyond the pandemic, investments in sustainable infrastructure would be integral to the recovery.
A Reuters poll released on Tuesday showed South Africa’s budget deficit is set to widen to a record 14% of GDP (gross domestic product) in 2020, far exceeding the official estimate of 6.3% for the last financial year. .
Finance Minister Tito Mboweni is expected to present an emergency budget on Wednesday, and Ramaphosa said falling revenues meant “difficult decisions will be made in the weeks and months to come” as the government seeks to redefine its programs, to manage public spending and to “adjust back to projects if necessary.”
“The economic hardships that have been imposed on a number of private sector companies will also be imposed on a number of public sector entities,” Ramaphosa said.
“Government, business, labor and civil society will need to deepen their collaboration like never before to drive the national recovery effort.”
At the heart of the budget will be a dispute over financial support from the International Monetary Fund (IMF) to fill the massive government revenue shortfall. In a research report published last week, risk consultancy EXX Africa said the budget would be key in determining South Africa’s future direction.
“Opponents of IMF conditionalities prefer to dip into state pension funds or step up central bank bond purchases to make up the shortfall,” said Robert Besseling, executive director of EXX Africa.
“With ‘battle’ lines drawn across the ideological divides of the ruling alliance, the outcome of the contest will determine the country’s political leadership and economic policy outlook for years to come.”
The South African government has announced a $30 billion economic and social support package while potentially facing $17 billion in lost tax revenue this year, Besseling pointed out.
PRETORIA, SOUTH AFRICA – MARCH 16: Finance Minister Tito Mboweni briefs the media on details of government interventions in various sectors of departmental portfolios on COVID-19 at the DIRCO Media Centre.
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IMF supporters argue that these measures are unsustainable without significant international financial support, which would also anchor political reform that attracts private creditors.
Mboweni’s supporters in the business world say South Africa needs an Egyptian-style economic turnaround, according to Besseling, aimed at raising per capita income, boosting economic growth through an improved business environment and reduce unemployment and poverty.
“However, unlike Egypt, the South African governing alliance is deeply fractured and the anti-IMF faction is exceptionally influential,” he explained. “Mboweni is close to President Cyril Ramaphosa, but lacks the political constituency of his political opponents.”
Proponents of state intervention oppose the strings attached to international financing from institutions such as the IMF and the World Bank, and instead favor bailouts of struggling state-owned enterprises, aggressive quantitative easing and tax levies. on public pension funds.
Ramaphosa’s ruling ANC (African National Congress) is still heavily influenced by supporters of former President Jacob Zuma, who are mobilizing support for Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma, said Besseling.
He anticipates a “deadly battle for control of South Africa’s ruling party and political leadership”, and suggested that Mboweni’s choice over how to bridge the revenue gap and fund economic recovery would be a crucial moment to determine how this internal division could play out.