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Ramaphosa unveils social and economic relief measures in wake of riots
In his address on Sunday, South Africa's President Cyril Ramaphosa gave detail of a rather substantial social relief package to address the effects of the Covid-19 pandemic and the recent unrest. Among these interventions is the resumption of the R350 social relief grant until March next year, and the COVID-19 TERS scheme would be extended for those sectors which were affected by Alert Level 4.The question is, where is this money coming from and someone who may have done the math is Annabel Bishop, Chief Economist at Investec.
Tue, 27 Jul 2021 11:01:21 GMT
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AI Generated Summary
- The reinstatement of the 350-rand social relief grant and the extension of the COVID-19 TERS scheme aim to address the effects of the COVID-19 pandemic and recent unrest in South Africa.
- The financial implications of the relief package raise questions about affordability and funding sources, with concerns about the impact on government finances and potential credit rating downgrades.
- The recent cyberattack on Transnet poses a significant risk to South Africa's export capabilities and underscores the importance of strengthening cybersecurity and government service delivery to support economic recovery.
South Africa's President Cyril Ramaphosa recently announced a significant social relief package to address the impact of the COVID-19 pandemic and recent unrest in the country. The package includes the reinstatement of the 350-rand social relief grant until March next year and the extension of the COVID-19 TERS scheme for affected sectors during Alert Level 4. However, questions arise about the affordability of these measures and the source of funding. Annabel Bishop, Chief Economist at Investec, sheds light on the financial implications of these relief measures.
Bishop highlights the uncertainty surrounding the affordability of the relief package, citing the need for second quarter GDP figures and the effects of recent unrest on economic projections. She notes that prior to the unrest, GDP forecasts for the year had been revised upwards to 4.5%, but the events in July led to a downgrade to 3.9%. The violent riots and strike actions resulted in a loss of about 50 billion rand, impacting government finances negatively.
The conversation also touches on the response of rating agencies to South Africa's economic outlook. Bishop emphasizes that government finances were already in a precarious state even before the recent turmoil. While S&P remains cautiously optimistic about supporting South Africa, there are concerns about potential downgrades from agencies like Fitch and Moody's. Improved government finances could help alleviate these negative outlooks.
Regarding the budget neutrality of the relief measures, Bishop suggests that it hinges on the country's economic performance. With the national treasury projecting a weaker growth rate of around 3.3% for 2021, the relief package's impact on the fiscal balance remains uncertain. The global and domestic growth that had been driving revenue increases may be offset by the adverse effects of the recent unrest and additional social relief expenditure.
The discussion also touches on the recent public sector wage deal and its implications for government expenditure. Bishop sees the resolution of the wage negotiations as a potential positive for government finances, but cautions that the damage from the riots may overshadow these gains. The violent unrest has created a negative sentiment that could hamper investment and economic recovery.
A key risk highlighted by Bishop is the recent cyberattack on Transnet, South Africa's state-owned freight transport and logistics company. The hack has disrupted Transnet's IT systems and raised concerns about the country's export capabilities. The manual operation workaround may impact efficiency and revenue generation from exports, further adding to the economic challenges faced by South Africa. Strengthening cybersecurity measures and government service delivery is crucial for building resilience and fostering economic growth.
In conclusion, South Africa faces a delicate balance between providing social relief measures and addressing economic challenges exacerbated by recent events. The country's path to recovery will depend on restoring business confidence, strengthening government finances, and enhancing cybersecurity to safeguard critical infrastructure.
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