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South Africa should brace for a deep recession this year after the bleak economic outlook that has been accelerated by the Covid-19 coronavirus pandemic in the country.
This sentiment was expressed by Finance Minister Tito Mboweni on Tuesday during a teleconference on the country’s economic outlook amid the pandemic.
“Going into this healthcare crisis, the economy was already in recession. Without a doubt, given what we know since February, Covid-19 will certainly further deepen the South African downturn woes,” he said.
“Our internal scenario planning has mapped out the economic impact of different lockdown scenarios, together with the consequent different paths for the fiscal deficit, for government borrowing and for the fiscal response.
“At this stage, our central scenario is for a deep recession this year, followed by a rapid upswing in economic growth,” said Mboweni.
The “understanding of how the global economy will adjust” to this global health crisis and modelling the country’s own plan accordingly is critical to getting the economy back into an upswing momentum quickly, he said.
He said the National Treasury was already ensuring this through being “in constant conversation with the teams at multilateral bodies, domestic and international economists, and of course the Reserve Bank”.
“We are also monitoring domestic and global high frequency data to ensure that we understand as well as we can the ongoing evolution of the economy. Our sophisticated banking and payment system provides us with near real time payment data,” said Mboweni.
He added that, together with other economic cluster ministers, deputy ministers and directors-general, the Treasury was exploring funding avenues both domestic and international to ensure that South Africa does not run out of funds to fight Covid-19.
READ: SA may need to adjust budget by as much as R150bn to provide for Covid-19
Mboweni was specific that the funds would be directed towards funding the fight against the pandemic as well as growing the economy.
“Overall, the fiscal framework as indicated in the 2020/21 budget will clearly change, we will refocus our attention towards assisting the health sector fight the pandemic as well as growing the economy.”
He said the economic cluster ministers will be presenting their economic review response to the pandemic before the Cabinet on Wednesday.
“We will present a set of proposals, which include how we propose to support the health department’s fight against the pandemic and other economic measures that would aid in the economy seeing an upturn after the pandemic,” said Mboweni.
Union federation Cosatu and the EFF have already expressed concerns over Mboweni approaching the IMF for assistance but the minister did not rule out this possibility, saying all avenues would be pursued.
Mboweni also credited the rapid phases of the country’s economic policy response for lessening the fiscal impact that the country could have experienced had they not been put in place.
Meanwhile, the Reserve Bank announced yet another reprieve for citizens on Tuesday with a cut by one percentage point for the second time in just less than a month, bringing the repo rate down to 4.25%.
This cut follows a 100 basis point cut on March 19. In January, the central bank cut interest rates by 25 basis points.
This announcement has however seen the rand weaken, trading 0.2% lower at R18.12/$ in morning trade.
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