Macroeconomic Policy Development: Lessons Learnt from South Africa during COVID-19

The depth and length of the economic downturn produced by COVID-19 is still unknown. COVID-19 hit South Africa on the back of a technical recession combined with growing public sector debt and a downgrade to junk status in March 2020. National Treasury was forced to borrow more to mitigate the impact of COVID-19 on businesses and households, which further weakened the country’s fiscal position. The South African Reserve Bank (SARB) responded swiftly with the full use of its arsenal of tools to protect price and financial stability. The use of macroeconomic policy eases financial conditions and improves the resilience of households businesses in relation to the economic implications of COVID-19. However, these policies alone cannot improve the potential growth rate of the economy or reduce fiscal risks. These should be addressed by implementing prudent macroeconomic policies and structural reforms as stipulated in the country’s economic reconstruction and recovery plan in an effort to lower costs, increase investment opportunities, and drive potential growth and job creation. If implemented successfully, these measures will further reduce existing constraints on macroeconomic policy and its transmission mechanism.