5. Monetary and Fiscal Policy Challenges Posed by South Africa’s Deepening Economic Crisis and the COVID-19 Pandemic

This chapter examined monetary and fiscal policy challenges posed by South Africa’s deepening economic crisis and the impact of the COVID-19 pandemic. It showed that fiscal policy post-2009 has clearly not yielded the desired effects. The macro-economic stability as captured by output growth and employment growth has been elusive despite the persistent widening budget deficit, increasing government debt growth and the debt-to-GDP ratio. The highly accommodative countercyclical fiscal policy has existed alongside a persistently widening negative output-gap, a declining investment-to-GDP ratio and nominal GDP growth. Factors that drive fiscal sustainability have also performed badly. The chapter has put forward the argument that because \(R\) and \(G\) lie at the center of fiscal sustainability, a combination of structural reforms that lift \(G\) and tighter co-ordination between monetary and fiscal policy that lead to a decrease in \(R\) are necessary policy interventions going forward. For tighter co-ordination between monetary and fiscal policy to be successful, a low and stable inflation environment is necessary.