Treasury promises R1 trillion support package for economy

A volunteer for the grassroots charity, Hope for Vrededorp, reaches out to a man with a container of home-cooked food, at a daily food distribution in the impoverished district of Vrededorp in Johannesburg, on April 28, 2020. The group home cooks almost 100 meals everyday since the beginning of South Africa lockdown, and distribute them to the needy residents of the neighbourhood. (Photo by MARCO LONGARI / AFP)

‘In the next several months, a special adjustments budget will set out a range of economic reform proposals and measures to stabilise the public finances,’ Treasury said.

South Africa’s phased approach to resuming normal economic activity will require a number of support measures which include an increase in healthcare spending for mass testing and an expansion on social grants that are targeted at the most vulnerable, according to National Treasury.

In a parliamentary briefing by Treasury on the financial implications of Covid-19 on the economy and national budget, it said South Africa’s fiscal position was weak.

“In the next several months, a special adjustments budget will set out a range of economic reform proposals and measures to stabilise the public finances.

“The total size of the package is estimated at over R1 trillion, consisting of a fiscal support package of R500 billion and monetary and financial market interventions worth another R500 billion,” said Treasury.

It said that additional support would be secured by shifting resources from non-urgent and non-priority programmes and drawing funds from institutions such as the Unemployment Insurance Fund.

“The economy currently faces overlapping aggregate demand and supply shocks, which are occurring sequentially. These domestic shocks will be the most significant drag on growth,” it said in a presentation to parliament.

It also said that over the next six to 12 months, the economic focus should shift towards supporting employment and investment to bolster economic recovery.

Meanwhile, the portfolio committee on trade, industry and competition, together with the select committee on trade and industry, economic development, small business, tourism, employment and labour, said the country must avoid a sharp increase in the levels of infections, with the return to work of large numbers of workers.

Minister of Trade and Industry Ebrahim Patel told the committees the country did not need to stay at level 4 for a specific number of weeks but could move to a lower level should risks be mitigated.

The committees said the estimated impact on the economy varied but according to the International Monetary Fund, gross domestic product (GDP) would fall by 5.8% in 2020.

The South African Reserve Bank estimated that GDP would fall by 6.1% in 2020 while the Industrial Development Corporation estimated that GDP would fall by 6.3%.

Committee chairperson, Duma Nkosi said the committee commended the decisive manner in which the government was dealing with the Covid-19 pandemic.

“We recognise the difficulty in the balancing act of keeping our people safe and reopening the economy, as these are interlinked,” said Nkosi.

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