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GTAP Resource #6395

"Recovering from COVID-19: Economic Scenarios for South Africa "
by van Seventer, Dirk, Channing Arndt, Rob Davies, Sherwin Gabriel, Laurence Harris and Sherman Robinson

This paper is concerned with the recovery phase from the severely depressed levels of economic activity that occurred in April 2020 with a focus on measures to accelerate recovery in the short term. We first consider available information on economic performance during the pandemic. Overall, the recovery has been rapid but unbalanced. In most sectors, production has returned close to 2019 levels so has aggregate household spending. To analyze recovery, we model policy impacts over four quarters. Simulations combine Covid intervention polices combined with alternative financing options. All scenarios are run from the 4th Quarter of 2020 to the 3rd Quarter of 2021. The most aggressive option, funded by reduced government savings, adds 2% to GDP over the period of observation. Financing matters. If the most aggressive intervention is financed by raising taxes of the top decile, a 0.7% increase in GDP is achieved.

All intervention plans are strongly progressive. Further, even in the most aggressive scenario financed by reduced government savings, the government debt to GDP ratio actually declines higher GDP and higher tax collections as a consequence of greater economic activity more than fully offset the increment to government debt.

We conclude that the South African government has been justified in considering and implementing aggressive intervention policies. Maintenance of these policies is appropriate as long as public health measures to restrain spread of Covid-19 also constrain economic activity. At the same time, there is little scope to expand interventions before the economy encounters the structural constraints that were severely depressing economic growth rates pre-pandemic. Assuming vaccines will allow return to more normal behavior towards the end of 2021, government needs to consider both tapering of extraordinary Covid-19 support programs and addressing structural growth constraints.

Resource Details (Export Citation) GTAP Keywords
Category: 2021 Conference Paper
Status: Not published
By/In: Presented during the 24th Annual Conference on Global Economic Analysis (Virtual Conference)
Date: 2021
Version: 2
Created: Gabriel, S. (4/15/2021)
Updated: Gabriel, S. (6/23/2021)
Visits: 949
- Economic crisis
- Economic growth
- Health
- Africa (Southern)

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