Without an effective reconstruction of South Africa’s growth path and distribution, the country will face “years of debt distress”, University of the Witwatersrand (Wits) adjunct professor Michael Sachs says.
In a webinar on April 24, hosted by the Centre for Development and Enterprise, the former head of the budget office in National Treasury said government’s initial response following the national lockdown should be “executed with speed” through using existing funding channels, while simultaneously planning “for the long haul”.
This, he proposed, could be done through unwinding of monetary positions, considering the reversibility of South Africa’s fiscal positions, and through delaying downward adjustments.
However, for an effective post-crisis resolution of the country’s finances, Sachs suggested that government consider a separate budget presentation, wherein it should discuss a separate funding strategy, linked to the National Budget as presented in February this year.
This separate budget presentation should be a temporary re-allocation of South Africa’s finances, he said, in an effort to provide a funding strategy to deal with the health crisis and related economic shocks.
As such, a path to consider should be the prioritisation of the skills development levy and the postponement of major capital projects and other asset-forming spending until next year.
The government should also draw down on surpluses across a consolidated government, and consider contribution holidays – such as for housing allowances, government employee pension funds and medical schemes.
Sachs noted that this may have impacts in the short term, but said that, ultimately, it would be to the benefit of the entire country, which is faced with the extraordinary challenge of remaining consistent with disease management objectives during the Covid-19 pandemic, and ensuring that output remains at levels similar to those prior to the outbreak.
The financial impact of the Covid-19 pandemic, and the subsequent national lockdown, is expected to last between six and 18 months in South Africa.
In the interim, however, Sachs suggested that government remain focused on key macro objectives during the shutdown, including the stabilisation of income flows to prevent consumption shocks; bridging finance to protect private balance sheets; ensuring “breathing space” for people to adjust to a lower income while also distributing the burden of this adjustment equitably.