Cabinet began a debate about introducing an economic relief package at its two-day biannual planning meeting on Monday to shield restless South Africans from the worst cost of living crisis in more than a decade.
“Lekgotla is going to come out with a package with regards to how we improve the situation,” said Mondli Gungubele, minister in the presidency. “I have no doubt that there will be something about those issues but I cannot give you [specifics].”
The meeting takes place as official data shows inflation surged to 7.8% in July, a level last seen 13 years ago, continuing an upward trend as pandemic-related disruptions of supply chains and Russia’s invasion of Ukraine drive up prices of basic food and fuel.
It also comes almost two weeks after labour federations Cosatu and the SA Federation of Trade Unions took to the streets of the country’s major cities to demand policymakers address the mounting cost of living, with one of the leaders, Zwelinzima Vavi, calling for a R1-trillion cash injection into the economy.
SA is not alone in coming up with relief measures to cushion consumers and businesses from rampant inflation, with countries from Germany to the US taking action to relieve hard-hit consumers and businesses.
Surplus
But the danger for the cash-strapped SA government, which has set a target of achieving a primary budget surplus — where revenue exceeds non-interest spending — in the 2024 fiscal year, is that pressure will build for the temporary measures to become permanent. Gungubele said that the meeting will discuss the effect of economic interventions by top economies on their fiscal framework.
“This is key in ensuring that we stay afloat, we are able to pay our debt and at the same time make sure we are able to close the deficit,” he said. “We will discuss budget pressures and expenditure pressures against the background of the country’s economy.”
SA’s debt-to-GDP ratio is expected to have come in at 69.5% in 2021/2022 — still high relative to what the IMF and private sector economists regard as sustainable for developing countries.
In the year to the end of March, the Treasury recorded a budget shortfall of 5.2% of GDP. It was a big improvement on the 9.9% logged in the prior financial year, when the pandemic wreaked havoc on the economy but not enough for it to reconsider the funding of SA’s priorities.
Other issues that will come up in the meeting include unemployment, which fell slightly in the second quarter but remains high at 33.9%, and progress on infrastructure investments, the lynchpin of President Cyril Ramaphosa’s economic recovery plan. “We have that commitment from the private sector to fund the projects as long as certain requirements are met ... and we will be analysing the 2050 infrastructure plan and how it is performing,” Gungubele said.
Resolutions from the cabinet lekgotla, which is also attended by deputy ministers, directors-general and provincial premiers, feed into government programmes and could ultimately end as policy or legislation.
The lekgotla takes place ahead of the release of second-quarter GDP figures on Tuesday.
The numbers are expected to reflect the fallout from the floods that hit parts of KwaZulu-Natal earlier in the year as well as the effect of the surging energy prices after Russia invaded Ukraine.
SA’s GDP probably shrank 0.7% in the three months to June, according to a Bloomberg median survey, slightly lower than the Reserve Bank’s forecast of a contraction of 1.1%.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.