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Transparent and rational stimulus choices

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Transparent and rational stimulus choices

12th June 2020

By: Terence Creamer
Creamer Media Editor

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Governments and economists around the world are currently considering how best to respond to the economic shock caused by the Covid-19 pandemic and to do so in a way that resets their economies for greater sustainability and resilience.

No economy will emerge unscathed and the impact on South Africa is expected to be especially large. The best-case forecasts suggest a five per cent contraction this year and hundreds of thousands of lost jobs, while the worst-case scenarios point to a collapse of close to 20% and the loss of millions of jobs.

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There is a growing likelihood that the country will need to adopt several unorthodox fiscal and monetary policies to help navigate the postpandemic phase. These policies will aim at stimulating the economy and shortening what could otherwise become a deep and protracted depression.

Some of these once-in-a-generation stimulus measures will come with unintended consequences and could fall short of meeting the objective of closing the gap between the actual output of the economy and its potential. Nevertheless, pursuing a business-as-usual pathway does not appear to be a realistic option in light of the scale of the economic crisis precipitated by Covid-19.

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Given South Africa’s already severe fiscal constraints, however, the stimulus choices have to be designed so as to limit any waste, while crowding in as many non-fiscal, or private, resources as possible.

The best way to avoid waste is to ensure that the choices are based on rational evidence, not the greedy aspirations of a predatory elite or incumbent industries. This will only be possible if decision-making is fully transparent and if the authorities provide reasons for those decisions upfront and provide some time for public feedback.

To ensure rationality, these choices also need to be guided by clear and well-articulated principles and values, which, in the postpandemic phase, surely need to lean in the direction of social and environmental justice, economic inclusion and vastly improved access to good healthcare.

Where possible, the interventions should be cross-cutting in nature so as to avoid the hazard of trying to pick winners. Targeted support for targeted activities with positive multipliers, such as infrastructure development, especially green infrastructure, will also be important, however.

That said, South Africans are acutely aware that making rational choices is but the end of the beginning. Once the decisions have been taken, every effort should be made to ensure diligent implementation.

Given the lack of capacity across many government departments and State-owned enterprises, the best way to support implementation, and amplify the impact of the stimulus, will be to crowd in private resources.

Doing so successfully and within a framework that apportions the risks fairly will require not only much greater policy certainty, but also regulations that are sensible and easy to navigate and procurement systems that are fair and transparent.

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