South African President Cyril Ramafosa warned that “difficult decisions and difficult days are yet to come,” as the country looks at the economic consequences of the coronavirus pandemic.
In his address to the nation on Monday, Ramafosa emphasized that enterprises in all sectors announced job cuts or a complete closure as a result of losses incurred since strict blocking measures were introduced in the country on March 26.
Knowing that economic restrictions are blocking, the government has begun to lift restrictions, but in South Africa, there are currently 101,590 confirmed cases of Covid-19, the most common on the continent, with 1,991 fatalities on Tuesday morning, according to the University John Hopkins. ,
“For a country like ours, which is already facing a crisis of unemployment and weak economic growth, difficult decisions and difficult days lie ahead,” Ramafosa said.
“We urge difficult decisions to be taken with caution and with due regard to balancing the resilience of companies and the livelihoods of workers.”
He emphasized the importance of continuing to help small businesses, including tax breaks, debt restructuring, expanding credit lines and retail rental benefits, as well as temporary financial assistance to low-income households, but noted that these measures could go so far.
Ramafosa argued that while the economic impact would extend far beyond the pandemic, investing in sustainable infrastructure would be an integral part of recovery.
A Reuters poll released on Tuesday showed that South Africa’s budget deficit is expected to widen to a record 14% of GDP (gross domestic product) in 2020, well above the official 6.3% estimate for the last fiscal year.
Finance Minister Tito Mboveni is due to set an emergency budget on Wednesday, and Ramaposa said a sharp drop in revenue means that “difficult decisions will be made in the coming weeks and months,” as the government seeks to reorient its programs, manage public spending and “scale” back to projects where necessary. “
“The economic difficulties that have been imposed on a number of companies in the private sector will be imposed on a number of organizations in the public sector,” Ramafosa said.
“The government, business, labor, and civil society will have to deepen their cooperation like never before in order to stimulate efforts to rebuild the country.”
At the core of the budget will be a dispute over financial support from the International Monetary Fund (IMF) to bridge the gap in government revenues. In a research report released last week, EXX Africa’s risk advisory firm said the budget would be critical to determining the future direction of South Africa.
“Opponents of IMF conditions prefer to join state pension funds or increase the purchase of central bank bonds to compensate for the deficit,” said EXX Africa Executive Director Robert Besseling.
“With the lines of the” battle “drawn through the ideological differences of the ruling alliance, the outcome of the competition will determine the country’s political leadership and the prospects for economic policy for the coming years.”
The South African government has announced a $ 30 billion economic and social support package, while potentially spending $ 17 billion in lost tax revenue this year, Besseling emphasized.
PRETORIA, SOUTH AFRICA – MARCH 16: Finance Minister Tito Mboveni informs the media about the details of government interventions in various sectors of the COVID-19 department portfolio in the DIRCO Media Center.
Phill Magakoe / Gallo Images via Getty Images
IMF proponents argue that these measures are unsustainable without broad international financial support that would also reinforce policy reform that attracts private lenders.
Supporters of Mboveni in the business community argue that South Africa needs an Egyptian-style economic turn, according to Besseling, aimed at increasing per capita income, stimulating economic growth by improving the business environment, and reducing unemployment and poverty.
“However, unlike Egypt, the ruling alliance of South Africa is deeply divided, and the faction against the IMF is extremely influential,” he explained. “Mboveni is close to President Cyril Ramafos, but he lacks the political affiliation of his political opponents.”
Proponents of government intervention oppose conditions that accompany international funding from institutions such as the IMF and the World Bank, and instead advocate for state-owned enterprises undergoing armed attacks to aggressively mitigate and receive funds from state pension funds.
Besseling explained that the ruling ANC (African National Congress) of Ramafosa is still heavily influenced by followers of former President Jacob Zuma, who mobilize support in favor of the Minister of Cooperative Management and Traditional Affairs, Nkosazan Dlamini Zuma, Besseling explained.
He foresaw a “fierce struggle for control of the ruling party and the political leadership of South Africa,” and suggested that Mboveni’s choice of how to close the income gap and finance economic incentives would be a decisive moment in determining how this internal division could end.