As South Africa grapples with the pandemic, the Organisation for Economic Co-operation and Development (OECD) says the government should urgently implement wide-ranging reforms to spur economic growth.
In a report released on Friday, the OECD recommends reforms such as improving the quality of and access to healthcare, supporting businesses and people, restoring fiscal sustainability, restructuring state-owned enterprises (SOEs) and developing tourism.
The OECD says policies to stimulate the recovery beyond the immediate relief plan will be needed until mid-2021. Even as the economy recovers, the government will have to improve investor confidence to “reverse weak investment and employment growth”.
“Clearer and swifter implementation of reforms would reduce uncertainty and facilitate long-term planning, accelerating reforms’ growth impact,” the report says.
The tourism sector was hit hard by the pandemic and resulting containment measures, yet it has good potential to contribute to the economy and future employment growth, the report says.
The Covid-19 pandemic arrived in South Africa when the fiscus was already stretched to its limits. To curb spending spending pressures, the OECD says the government should take steps to reduce the public wage bill and rationalising support to SOEs. Other measures recommended by the OECD include boosting competition, improving the regulatory framework and improving public investment in transport infrastructure, skills and education.
Africa’s most industrialised country has been hit hard by the pandemic, with 482 169 cases confirmed and 7 812 deaths so far. South Africa is heading towards its peak, which is expected at the end of August and beginning of September.
The OECD forecasts two scenarios for the spread of the pandemic in South Africa and its effects on the economy. The first scenario (single hit) will see the virus subside in the medium term, enabling the government to focus on growth enhancing initiatives to lift the economy.
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 growth of 2.5% in 2021.
If there is a renewed virus outbreak in October and November after the first peak, the OECD forecast a further deepening of the recession, to -8.2% in 2020, and limiting the recovery in 2021 to GDP growth of just 0.6%.
To avoid a renewed outbreak of the virus, the OECD recommends tougher actions on testing and tracking and isolating people who have been infected.
The lockdown began on March 27, resulting in reduced economic activity. During the hard lockdown in April and May, the mining industry was permitted to operate at a reduced rate, but the tourism, entertainment and passenger transport sectors were brought to a standstill.
From the June 1, restrictions were eased and allowed more economic activity. Despite this, there is still a high level of uncertainty of post-pandemic recovery. The government also implemented a R500-billion social and economic recovery plan as a response to the pandemic.
During the presentation of the report on Friday, treasury director general Dondo Mogajane welcomed the OECD’s report and recommendation saying, “Our future as a country is dependent on how we are spending public resources … if we cannot afford, don’t do it.”