Via IMF (Den Internationale Valutafond)

Job seekers stand outside a construction site near Johannesburg. South Africa’s unemployment rate hit a record high even before the pandemic hit. (photo: Siphiwe Sibeko/REUTERS/Newcom)

Job seekers stand outside a construction site near Johannesburg. South Africa’s unemployment rate hit a record high even before the pandemic hit. (photo: Siphiwe Sibeko/REUTERS/Newcom)





South Africa Looks Toward Inclusive Recovery to Stabilize Debt, Boost Growth







August 3, 2020
















In a conversation with IMF Country Focus, the Director-General of
South Africa’s National Treasury Dondo Mogajane explains how the government
has responded to the COVID-19 crisis, how IMF financing will help to
stabilize the economy, and strategies for addressing debt and spurring
growth.

South Africa’s economic activity is projected to contract by 8
percent in 2020, according to the IMF’s

June update

to the Regional Economic Outlook for sub-Saharan Africa.


What has been the impact of COVID-19 on South Africa and what sectors
have been hit the hardest?

COVID-19 brought many challenges: a decline of about 18 percent in
employment between February and April; every third income earner in
February did not earn income in April; job losses were felt most among
women and manual labor. Those at the bottom of the income distribution have
suffered a great deal.

Based on our assessment, the most affected sectors are construction,
personal services, trade, catering, hospitality, transport, storage, and
communications. The crisis also brought manufacturing and mining to a halt.

We are projecting a loss in government revenue of $18.2 billion this year.


What measures are being taken to provide relief to households and
businesses?

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Our relief strategy has three phases. The first phase started in mid-March
with measures to mitigate the immediate effects of the pandemic: child
support grants were targeted to alleviate child hunger; the Unemployment
Insurance Fund provided wage support; and we funded emergency procurement
and streamlined rules to support the health sector. We also funded direct
grants to small businesses, in particular to small tourism operators.

A second phase is aimed at stabilizing the economy. This is driven by
support from the IMF and others. Assistance comes through a $29.9 billion
package announced by President Ramaphosa on April 21 that boosts healthcare
spending, provides financial relief to municipalities, and temporarily
expands the social grant payment system.

The third phase will help drive the recovery and economic growth. Central
to this recovery strategy will be measures that stimulate demand and supply
through interventions such as infrastructure funding.


How will the recently approved $4.3 billion IMF Rapid Financing
Instrument be deployed?

This funding will support five interventions laid out in the supplementary
budget: supporting health and frontline services; protecting the vulnerable
by extending child support, old age benefits, and disability grants by six
months; creating more jobs; unlocking economic growth through our reform
initiative; and taking measures to stabilize public debt.

We think that over time we will be able to augment these budget initiatives
by reprioritizing and ending certain programs and projects that are not
effective.


What measures are being put in place to ensure the IMF assistance is
used for its intended purpose?

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We have agreed with the Auditor General, an independent body, to not wait
until next year to audit COVID-19 related spending. General Emergency
Procurement

instructions

were issued by the Treasury on April 28 to put measures in place to prevent
and combat the abuse of supply chain management processes and ensure monies
go where intended. These instructions also specifically outline control
measures that must be put in place in relation to COVID-19 spending, such
as reporting frameworks, internal measures between and within departments,
the establishment of audit committees, and reporting on a monthly basis
what has been procured, who has ordered these, and the amounts. Procurement
of personal protective equipment will also be based on a price reference
list.

The President also recently announced a high-level committee that includes
law enforcement agencies, the Special Investigating Unit, and the Financial
Intelligence Center to investigate anti-corruption cases involving
COVID-19 funding.


South Africa’s debt is expected to further increase this year. What
actions are being taken to address this?

We have designated $9.6 billion for budget cuts. Some of this is part of
$23.3 billion in designated spending over three years in relation to public
wages and salaries. I recently filed an affidavit to the High Court in
South Africa to explain that we cannot fulfill wage increases in the last
year of the three-year wage agreement with labor unions because of lost
revenue due to the crisis.

We are committed to stabilize debt so that it peaks at 87 percent debt to GDP by 2023-2024 and starts declining thereafter. Ahead of
the medium-term budget policy statement in October, some debt reduction
will be achieved as a result of the expenditure reviews that we are
currently conducting.

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We also agreed to a zero-based budgeting exercise. It will help us to focus
on areas where we should cut to reverse the rise in debt.


Economic growth in South Africa has been very low in the last decade
and is now negative. What is the government doing to reverse this
trend?

The government is undertaking structural reforms to facilitate higher and
more inclusive growth. Network industries in telecommunications,
electricity, ports, rail, and roads will undergo modernization and reform.
Trade policies will be reoriented to take advantage of the free trade area
in Africa, pursue greater regional integration, and establish South Africa
as an export platform to the region. Entry barriers will be lowered to make
it easier for business to start, grow, and compete. Support will be focused
on labor-intensive sectors like tourism and agriculture where there is more
potential for people to get jobs. Finally, reforms will be implemented to
strengthen the governance of state-owned companies.