South Africa’s economy could contract by 8.2% should the nation experience a second wave of COVID-19.
The Organisation for Economic Co-operation and Development (OECD) in Economic Survey of South Africa says the nationwide lockdown has reduced mining and industry while bringing the tourism, entertainment, and passenger transport sectors to a near-standstill.
OECD lauds South Africa’s swift response to the pandemic to ensure recovery. However, the long-standing challenges existing during the pre-pandemic period, coupled with the sharp drop in activity, means that the South African government urgently needs to unveil structural reforms.
OECD opines that in the single-hit scenario, where a second wave of the virus is avoided, economic activity will still fall by 7.5% in 2020 before picking up progressively to a growth of 2.5% in 2021.
Under a so-called double-hit scenario, a new outbreak affecting South Africa and its trading partner countries will curtail exports, deepen the recession to -8.2% in 2020, and limit the recovery in 2021 to GDP growth of just 0.6%.
OECD on South Africa
OECD recommends macroeconomic and structural policies for South Africa to ensure sustainable and equitable development post-pandemic. Fiscal consolidation is a top priority to reduce government wage bill and transfers to state-owned enterprises.
OECD also calls for structural policy reforms to boost competition, restructure state-owned enterprises, improve the regulatory framework, and improve public investment in transport infrastructure, skills, and education.
The survey recommends measures to improve the quality of and access to health care and support businesses and people. This includes lowering interest rates; providing temporary financial support to households and businesses; and extending financial relief in sectors hard hit by the crisis, particularly if there is a renewed virus outbreak later in the year.
The International Monetary Fund (IMF) projects South Africa’s economy to shrink by 7.2%, attributed to growing debt repayments due to the negative impacts of the global COVID-19 pandemic that threatens to drive the economy into a deep recession.
South Africa has accessed loan facilities from the IMF and the African Development Bank (AfDB) in July to shield against the pandemic economic downturn. The Executive Board of the International Monetary Fund(IMF) approved South Africa’s request for emergency financial assistance of US$ 4.287 Billion on July 28. AfDB approved an R5 billion ($288 million) loan to South Africa on July 23.