THEBE MABANGA
THE International Monetary Fund (IMF) has urged countries to maintain COVID-19 spending support in order to prevent widespread business failures and high unemployment.
For countries like South Africa, this means continuing support such as the R350 Covid relief grant, which is currently in place until the end of January and follows the withdrawal of an additional R500 to child support grant recipients.
“The pandemic-induced economic crisis is set to leave deep scars,” IMF researchers Oya Celasun, Lone Christiansen and Margaux McDonalds warn in a new paper.
“Human capital erosion from prolonged high unemployment and school closures, value destruction from bankruptcies, and constraints on future fiscal policy from elevated public debt,” are sone of the most prominent features of the fallout from the pandemic.
“Groups that were already poor and vulnerable are set to see the largest setbacks,” the trio states.
The G20 countries, of which South Africa is a member, have provided $11 trillion support to individuals, households, businesses, and the health care sector since the start of the pandemic.
“However, much of the fiscal support is now gradually winding down, and many benefits such as cash transfers to households, deferred tax payments, or temporary loans to businesses have expired or are set to expire by the end of this year.”
The IMF notes that many countries, including South Africa, saw deficit widen this year but this is set to narrow next year.
South Africa’s budget deficit is expected to reach 14.9% this year.
While the narrowing of deficit may reflect improved growth, the IMF notes that another key factor is withdrawal of discretionary support related to COVID-19.
As a solution, their IMF advocates for maintenance of spending support.
“First, support should be maintained throughout the crisis,” the IMF says.
“A premature withdrawal of support would impose further harm on livelihoods and heighten the likelihood of widespread bankruptcies, which in turn could jeopardize the rand.”
South Africa may be faced with this danger as the country has already announced spending cuts in a range of areas as the country looks to stabilise debt at almost 90% of GDP in the next three years.
South Africa has also announced reprioritisation of spending in areas including schooling infrastructure and other conditional grants In order to raise R10 billion to bail out ailing national airline South African Airways.
Beyond COVID-19, the IMF calls for the adoption of policies that make economies resilient.
“For instance, policies that promote investment and hiring in expanding sectors and provide reskilling and training opportunities to the unemployed will strengthen the recovery and make it more sustainable,” South Africa has stated a desire to adopt this policy path but its industrial policy is now focused on a wide range of sectors and efforts at reskilling and training are undermined by a poor education system.
South Africa saw its unemployment rate drop from 30.1% to 23% in the second quarter of 2020, but only because 5 million people dropped out of the labour force.
(SOURCE: INSIDE POLITICS)
