Fitch lauds SA for its macro policy response
RATINGS agency Fitch yesterday warned that the recovery of emerging markets countries might lag behind the Covid-19 pandemic as their macro policy responses had been less aggressive.
Fitch said South Africa, along with Brazil and Poland, made the largest fiscal policy responses to the crisis among emerging-market economies.
More than 25 emerging economy countries have relied heavily on the International Monetary Fund’s Rapid Financing Instrument as the pandemic took toll on economic activity and gross domestic product (GDP).
Fitch director Marina Stefani said one common feature of the emerging markets response was widespread interest rate cuts, with sharp reductions in Turkey, South Africa, Mexico, Brazil and India.
“Responses to the crisis have been strikingly uneven, with developed-market countries within the Fitch 20 set to spend an aggregate $7.6 trillion (R187trln) or 11 percent of 2019 GDP in overall fiscal-support measures, while emerging-market economies have announced a modest $1.2trln or 1.8 percent of 2019 GDP,” said Stefani.
“South Africa’s fiscal support accounts for 7.3 percent of GDP, although 54 percent of the stimulus will be in the form of credit guarantees to support SMEs.”
In March, the South African government launched a R500 billion economic recovery package through a range of fiscal and monetary interventions.
The SA Reserve Bank also reduced interest rates by a cumulative 225 basis points to 3.75 percent at smoothing spikes in money markets and bond yields with the focus on stabilising financing conditions rather than supporting lending.
This month, Finance Minister Tito Mboweni is expected to table a reworked Budget to reprioritise spending from non-critical programmes to respond to the Covid-19 crisis that has devastated the economy.
Fitch lauded the macro policy responses by 20 countries covered in its Global Economic Outlook, including South Africa, as unprecedented.
It said the fiscal support was equivalent to 12.8 percent of combined Fitch-20 2019 GDP including guarantees of 5.7 percent.
The direct fiscal stimulus measures totalled $5trln, or 7 percent of the world’s GDP, and significantly exceeded the post-global financial crisis of 2008.
Stefani said these policy responses would help the global economy recover post the Covid-19 crisis.
“The scale of fiscal easing announced to date, which could increase further, is significantly larger than the fiscal response seen after the global financial crisis, when the advanced economies saw a fiscal easing of around 3 to 4 percent of GDP,” Stefani said. “Massive policy easing will undoubtedly help the pace of the post-crisis economic recovery.”