SA must change budget priorities to offset cost of relief, says IMF

SA should aim to reprioritise its budget to offset the cost of relief measures for businesses and individuals affected by deadly riots and accelerate reforms to foster inclusive economic growth, according to the IMF’s resident representative for the country, Max Alier.

“This is a tragedy, but at the same time we can’t lose sight of the fiscal realities,” he said in an interview.

At least 330 people died and thousands of businesses were looted or burnt down in unrest that erupted on July 10. The turmoil could cost the country about R50bn in lost output and has placed 150,000 jobs at risk.

The cabinet on Sunday discussed a relief package that is likely to include a basic income grant for the unemployed.

While the IMF understands that new spending priorities have emerged in the wake of the unrest, the authorities should ideally reprioritise expenditure to offset relief measures and try to keep the fiscal framework intact, Alier said on Friday.

Deviations from the Treasury’s projection that debt will peak at 88.9% of GDP in the 2026 fiscal year could put public finances on an “explosive path”, he said.

If the relief package cannot be fully offset, then the government must fast-track the implementation of structural reforms that attract private investment, lift economic growth and create jobs, according to Alier.

“The social support that is being discussed is a temporary Band-Aid solution,” Alier said. “The ultimate solution is to create the conditions for people to get jobs.”

Energy security and the allocation of broadband spectrum should be the government’s top reform priorities, he said. Authorities should also work on labour market changes and enhance competition, which will make the economy more dynamic, and create room for small and medium businesses to grow and create jobs.

While the IMF is due to raise its 2021 economic growth forecast of 3.1% for SA on Tuesday after a better-than-expected first-quarter expansion, the upward revision will be capped by this month’s unrest, Alier said.  

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