South Africa’s president Cyril Ramaphosa unveiled fiscal spending worth a tenth of the country’s output, including a first ever request for an IMF loan, to stir Africa’s most industrialised economy from its pandemic lockdown and avert a looming hunger crisis. A R500bn ($26bn) package will target large increases in existing welfare grants, funds for protecting jobs and a R200bn loan guarantee scheme for pandemic-hit businesses, Mr Ramaphosa said in a televised national address on Tuesday. “The pandemic requires an economic response that is equal to the scale of disruption it is causing” weeks after a lockdown was imposed in late March, he said. South Africa had until now been one of the biggest laggards among major economies in terms of its fiscal measures to deal with the pandemic. The country entered the crisis with battered public finances after years of corruption, stagnant growth and rising debts under the ruling African National Congress.
It was recently downgraded to junk by Moody’s. The stimulus announced by Mr Ramaphosa “goes well beyond previous expectations”, said Razia Khan, chief Africa and Middle East economist at Standard Chartered. “Although this will probably set South Africa on a much higher debt path, given the scale of the stimulus, it may also help to protect the economy from a deeper economic contraction,” Ms Khan said
South Africa’s central bank has forecast a contraction in GDP of more than 6 per cent in 2020, with some economists predicting a greater drop. An “extraordinary coronavirus budget” will reprioritise R130bn of existing spending to help finance the stimulus package and seek local funding, Mr Ramaphosa said. Excluding the reprioritised funds and the business loan guarantees which do not need upfront funds, the package is worth 3 per cent of GDP. But he said that his government has also approached the IMF, World Bank and other international sources of finance for loans. The bodies have offered African countries rapid pandemic facilities with relatively light conditions on the loans. South Africa has never before tapped IMF money. Without fiscal help, “millions of South Africans in the informal economy and without employment are struggling to survive”, Mr Ramaphosa said. With South Africa’s jobless rate already close to 30 per cent, the lockdown has left an army of informal tradespeople, cleaners and street vendors unable to work. Protests over food have broken out.
Mr Ramaphosa said that South Africa’s system of cash social grants would be redeployed to give a temporary boost to incomes of the poorest. Amid the R50bn allocated to increases, the child support grant, which makes up a majority of the grants paid out each month, will double by R500 per month for six months. Civil society groups had called for the cash grant increases as the most efficient way to provide rapid relief to the poorest. Mr Ramaphosa pledged a “risk-adjusted” cautious approach to a “phased reopening” of the economy after the lockdown, which has been in effect since late March. South Africa has reported just over 3,400 coronavirus cases and 58 deaths since its first infection was confirmed in early March. The country is in the middle of a significant increase in daily testing.