By Kola Olapite,South Africa
According to the national treasury’s projection, South African economy may face another tough challenge as job losses could reach an unprecedented rate, about 50% which is projected to be up to 7 million people potentially losing their jobs resulting in the coronavirus pandemic that has brought a sharp contraction in the country’s economy due to the inevitable lockdown following the South African president’s declaration of national disaster in March 26th, 2020.
The minister of Finance, Tito Mboweni and Treasury Director General, Dondo Mogajane, gave this projection while addressing media on the state of South African economy after the lockdown. They also spoke on how the government R500b stimulus package would cushion the possible effects of coronavirus on the country’s economy as a whole.
Prior to the emergence of coronavirus and the inevitable lockdown that followed President Cyril Ramaphosa’s declaration of national disaster, finance minister affirmed that domestic economy was already in a recession as shown by some performance indicators. The ratings agencies; Moody’s, Fitch and S&P did not help the situation by downgrading South African economy and 5 largest country’s commercial banks; Standard Bank, Absa, Investec, FirstRand and Nedbank to a junk status and ‘BB’, negative outlook respectively.
An immediate effect of these downgrades is that the South Africa’s treasury bond will now be excluded from world government bond index. “It is a sad day for me and for South Africa as we are going to be out of JP Morgan bond Indexes tomorrow”, it is bad news, “finance minister,Mboweni lamented.
There was an indication that if the virus can be contained quickly and the economy can bounce back with various stimulus and palliative measures, then, job losses could be reduced to just less than three million. Slow recovery period will see over five million job losses. And in the worst case, where it will take longer time to contain the pandemic followed by a slower economic recovery – more than seven million jobs will be lost, and this will push the unemployment rate to over 50% as being predicted by the nation’s national treasury.
The Treasury further projected that the following sectors of the economy; manufacturing, construction, trade, catering, accommodation, and financial sectors will be affected more than other sectors. It is an obvious fact that lockdown had brought economic activities to a standstill and led to some businesses’ to file for bankruptcy and such would lead to an unavoidable laying off of the workers of the affected organizations
According to finance minister, the only way to close the gap is to borrow more and to reprioritize expenditure, which has warranted that treasury table an adjusted budget much earlier this year, instead of October. Finance minister, T. Mboweni said that government will be looking to do away with “bells and whistles” and focus on what is needed to continue functioning. He did not rule out the sale of state-owned enterprises. “I can’t promise no sales of SOEs. There will be sales of poorly functioning SOEs,” he said.
Finance minister intimated the media that government is talking with International Monetary Fund to access a $4.2 billion facility to mitigate effects of Covid-19 on South African economy and also to enable the nation to be effective in achieving her macro-economic objectives. “My understanding is no conditions will be attached,” said Mboweni. He further said that the country is also finalising a $1 billion and $50m loans from the New Development Bank and World Bank respectively.
In the same vein, Gauteng Premier, David Makhura said that out of the 7 million projected job losses due to Covid-19 in South Africa, many of them would be in his province.
“In our modelling in Gauteng, there are two scenarios. In the best-case scenario, we will have about 890 000 job losses. We have revised the number from 600 000 people losing jobs. In the worst-case scenario, up to two million jobs will be lost in the Gauteng economy,” David Makhura projected.
The opposition leader (DA caucus) in the Gauteng Provincial Legislature, Solly Msimanga said the provincial government needs to proactively put measures in place to cushion the effect of the pandemic on the economy
The National Treasury and finance ministry have outlined three scenarios the economy’s recovery path could take following the lockdown – but regardless whether there will be a quick, slow or long recovery; retrenchments and job losses are inevitable.
| “It is a sad day for me and for South Africa as we are going to be out of JP Morgan bond Indexes tomorrow”, it is bad news.”-Finance minister, Tito Mboweni.
|
