Photo by: Bloomberg
Economist Duma Gqubule has urged government to top up its current stimulus package in the face of lockdown measures which he says have brought the economy to a standstill and caused the unemployment rate to skyrocket.
Last month President Cyril Ramaphosa announced an extraordinary coronavirus (Covid-19) budget of R500-billion to stimulate the economy amid the global pandemic.
Gqubule said the portion allocated to households was an insult and advised government to come up with a fiscal stimulus that was equal to the expected shock.
He said government’s “poorly designed and hastily assembled” stimulus package will have little impact on GDP growth. The economy was still expected to contract by between 6% and 10% in 2020, which will result in the loss of millions of jobs.
“In the wake of the global financial crisis, state revenues in South Africa collapsed by 3%, which was twice the 1.5% GDP contraction. Assuming a GDP contraction of 6%, the likely treasury estimate, State revenues could decline by 9%. This could result in a R230-billion increase in the estimated budget deficit to about R600-billion – equivalent to 13.8% of GDP from an expected 6.8% two months ago. A more plausible 10% GDP contraction would result in a R324-billion increase in the budget deficit to about R700-billion, equivalent to about 14.5% of GDP,” Gqubule explained.
According to Treasury’s predictions, the country’s economy was struggling with job losses potentially reaching up to 7-million as a result of the Covid-19 pandemic. This would take the country's already record unemployment rate to as high as 50%.
Gqubule said the biggest challenge was how long the uncertainty would last, predicting that this could be the biggest collapse of the country’s economy for more than a century.
Meanwhile, he said the Unemployment Insurance Fund needed to be repurposed to provide proper income replacement for people.
“They have fixed some of the glitches that they had and they say they are paying in 48 hours but the point is income replacement is very low and we need to find a way to increase the income replacement,” he added.