In a media briefing on Tuesday, Finance Minister Tito Mboweni said Covid-19 was one of the greatest challenges that had ever faced South Africa, but he expressed confidence in the path President Cyril Ramaphosa had picked for the country.
“It is three simultaneous shocks. It is a health shock, which will stretch the resources of our healthcare system to its limit. It is a global economic shock, which will substantially reduce global economic growth and consequently external demand, and it is a domestic economic shock, because our domestic responses will reduce economic activity, both from a demand side and a supply side.”
He said the health and lives of fellow South Africans needed to come first as “an out-of-control pandemic would hit the economy extremely hard” anyway.
Mboweni then qualified this by saying that although the health and lives of people “must come first”, “we must also ensure that we protect their livelihoods”.
He told journalists on Tuesday that Treasury was talking to international lenders for possible Covid-19 support loans, including discussions with the World Bank, New Development Bank and African Development Bank.
A facility of $60 million was being considered from the World Bank, though “no stone will be left unturned” regarding looking at all available options.
Mboweni discussed all the measures Treasury had implemented and still planned to introduce in order to mitigate the effect of the pandemic on the South African economy. He and his team would brief Cabinet on Wednesday on their proposals to revive the economy.
“A short while ago, the Monetary Policy Committee reduced interest rates by a further 100 basis points. Their flexibility, and willingness to act speedily is similar to the approach of many other central banks.
“Going into this healthcare crisis, the economy was already in recession. Without doubt, given what we know since February, Covid-19 will certainly further deepen the South African downturn woes.”
He said Treasury’s internal scenario planning had 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 in 2020, followed by a rapid upswing in economic growth. Critically, the path relies on an understanding of how the global economy will adjust.”
He said that “on the relatively optimistic side”, however, the Organisation of Economic Cooperation and Development (OECD) had highlighted that economic growth in South Africa would shrink by less than other emerging markets, in part because South Africa was not a net oil exporter.
“The International Monetary Fund’s April 2020 World Economic Outlook will be released later today. Current estimates from the IMF show global growth contracting this year by about 2.9 per cent. For South Africa, their initial estimate was for an economic contraction of 5.8 per cent. Other estimates vary.
“The most recent official sector forecast is that issued by the South African Reserve Bank. The Bank expects GDP in 2020 to contract by 6.1 per cent, compared to the -0.2 per cent expected just three weeks ago. GDP is expected to grow by 2.2 per cent in 2021 and by 2.7 per cent in 2022.”
Mboweni repeated his view that “every crisis is an opportunity for us to address our problems and challenges”.
“South Africa has a safe, sound, well-regulated and resilient financial sector. We have deep and liquid markets. Since the global financial crisis, we have taken steps to strengthen the banking system, including increasing capital, improving liquidity and reducing leverage. As a result, the banking and financial system is particularly resilient.”
You can read his full presentation for yourself below: