In times of crisis, perhaps the best response is to do away with convention. For convention may have been the spark that lit the flames of calamity. Although unplanned and unfortunate, crises do provide an opportunity to pause and reflect on the efficacy of a specific policy path.
The Medium-Term Budget Policy Statement (MTBPS), tabled against the backdrop of enormous economic turmoil both domestically and globally, is intriguing in tone and content. Granted, South Africa is not alone in facing the unprecedented economic crisis triggered by Covid-19. There is no escaping that reality.
But the country’s fiscal response is a curious case of economic fundamentalism when policy fluidity and creativity are warranted. This is surprising because even the World Bank is shifting its perspective on “economic fundamentals” such as, for example, the usefulness of economic growth without the attendant jobs. This old-school conception of growth is inspiring a new-found agnosticism because experience has shown how ineffectual it is in dealing with income inequality and poverty.
In its latest edition of Africa’s Pulse, the World Bank goes into detail explaining why the moderate gains of Africa’s decade of sustained economic growth have been undermined by the fact that this growth was not underpinned by jobs.
That explains the continent’s predicament in the current climate and context: it does not have much of a buffer in the form of an upwardly mobile population to weather the Covid-19 storm. Instead, the World Bank estimates that of the 100 million people worldwide who will fall into poverty as a result of the current crisis, 40 million will be in Africa.
It is refreshing to note that the World Bank has implored the region’s leaders to rethink and reset what constitutes fit-for-purpose economic policies – instead of chasing an economic growth agenda alone. The export-orientated model, among other policies, has not done the continent any favours in the past, and it will most likely not do so now.
The data increasingly shows why the conventional wisdom of pursuing economic growth in and of itself has unintended consequences, including reinforcing inequality and further entrenching poverty. There is no shortage of empirical evidence bearing witness against the follies of a doctrinaire approach to economic policy. Convention, as experience has demonstrated, does more harm than good. No matter which way economic fundamentalism is analysed, the results are more or less the same: it yields adverse outcomes and structural inefficiencies.
Taking that into consideration, this raises the question whether the MTBPS, and the general budgeting process pursued this year, is the appropriate mechanism through which to address the systemic imbalances generated by maladministration in the past 10 years. The cut and thrust of the MTBPS – as well as the February Budget and the June supplementary budget – is debt consolidation and stabilising public finances.
That was all good and well in February, but going about matters the same way amid the ravages of Covid-19 seems unwise and unwarranted. Attempting to solve the past decade’s problems in a year of crisis is not only out of step with what is happening in other jurisdictions, but also bears with it the prospect of worsening the situation for South Africa. If there is one thing the global financial crisis of 2008-2009 has taught policymakers, it is that austerity worsens, instead of betters, a downturn.
Put another way, it is unclear what the aim of achieving fiscal stability in and of itself is when the real economy is in tatters. For whom and to what end will fiscal stability matter when millions of South African are wanting for work and poverty is on an upward trajectory?
This is in no way suggesting debt stabilisation is a non-factor or unimportant. But the point is that most countries are in a liquidity crunch – South Africa is neither unique nor an exception in this regard. Also, in his capacity as the African Union chair, President Cyril Ramaphosa has appointed some of the best and brightest minds on the continent to negotiate sovereign debt terms given the magnitude of the Covid-19 crisis.
So talk of fiscal discipline, consolidation and sovereign credit ratings is aloof to the socioeconomic crisis at hand. The MTBPS, whether intended or not, reads like a throwback to that much-maligned structural adjustments era. It would not be alarmist to posit that its stance is detrimental to the objective of economic recovery. It shows no signs of a rethink or a reset. This is a great pity. DM/BM