Business

South Africa Must Offset Relief Funds, Hasten Reforms, IMF Says

Article content

By Prinesha Naidoo

(Bloomberg) —

South Africa should aim to re-prioritize its budget to offset the cost of relief measures for businesses and individuals affected by deadly riots and accelerate reforms to foster inclusive economic growth, according to the International Monetary Fund’s resident representative for the country.

“This is a tragedy, but at the same time, we can’t lose sight of the fiscal realities,” Max Alier said Friday in an interview.

At least 330 people died and thousands of businesses in the commercial hub of Gauteng and the eastern KwaZulu-Natal province were looted or burned down in unrest that erupted on July 10. The turmoil could cost the country about 50 billion rand ($3.4 billion) in lost output and has placed 150,000 jobs at risk.

Advertisement

Article content

President Cyril Ramaphosa may unveil a package aimed at helping those affected on Sunday night, when he is due to deliver a televised address on measures to curb the spread of the coronavirus.

Read more: South Africa Says Third Coronavirus Wave Has Passed Its Peak

While the Washington-based lender understands that new spending priorities have emerged in the wake of the unrest, the authorities should ideally re-prioritize expenditure to offset relief measures and try to keep the fiscal framework intact, Alier said. Deviations from the National Treasury’s projection that debt will peak at 88.9% of gross domestic product in the 2026 fiscal year could put public finances on an “explosive path,” he said.

If the relief package can’t be fully offset, then the government must fast-track the implementation of structural reforms that attract private investment, lift economic growth and create jobs, according to Alier.

Advertisement

Article content

Africa’s most-industrialized economy contracted the most in a century in 2020 and lost 1.4 million jobs as restrictions to curb the spread of the coronavirus weighed on output and forced some businesses to cut wages, reduce staff or close permanently. The unemployment rate, which reached a record 32.6% in the first quarter, has remained above 20% for at least two decades.

“The social support that is being discussed is a temporary band-aid solution,” Alier said. “The ultimate solution is to create the conditions for people to get jobs.”

Read more: Why South Africa Suffered Worst Riots Since Apartheid: QuickTake

Energy security and the allocation of broadband spectrum should be the government’s top reform priorities, he said. Authorities should also work on labor-market changes and enhance competition, which will make the economy more dynamic, and create room for small-and-medium businesses to grow and create jobs, he said.

Advertisement

Article content

While the IMF is due to raise its 2021 economic growth forecast of 3.1% for South Africa on July 27, after a better-than-expected first-quarter expansion, the upward revision will be capped by this month’s unrest, Alier said. Economists, including Michael Kafe of Barclays Bank Plc, see the riot damage shaving as much as one percentage point off GDP growth this year.

The country could receive as much as $4.3 billion in new reserves, known as special drawing rights, or SDRs, that the IMF is creating to help its members overcome the devastation wrought by the pandemic, Alier said. The IMF gave South Africa a $4.3 billion emergency loan in July last year to assist in fighting the virus.

©2021 Bloomberg L.P.

Bloomberg.com

Advertisement

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

    Comments

    Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

    Share this news on your Fb,Twitter and Whatsapp

    File source

    NY Press News:Latest News Headlines
    NY Press News||Health||New York||USA News||Technology||World News

    Tags
    Show More

    Related Articles

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    Back to top button
    Close