A vendor counts out banknotes while working in an African craft market in South Africa.
- The Financial and Fiscal Commission has warned that Ukraine-Russia conflict will put pressure on the South African economy.
- According to the FFC, it’s now improbable that the economy will return to pre-pandemic levels this year.
- However, the conflict could increase tax revenues from mines, as commodity prices spike.
The Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO) warned Parliament that Russia’s invasion of Ukraine had significant economic impacts for South Africa, striking off any chance of a pre-pandemic recovery for South Africa this year.
The two institutions were briefing members of Parliament on Tuesday morning about the fiscal environment in which Finance Minister Enoch Godongwana’s 2022 Budget Speech would be implemented.
FFC acting CEO Chen Tseng told a joint meeting of the Standing Committee on Finance, the Standing Committee on Appropriations, the Select Committee on Finance, and the Select Committee on Appropriations that the conflict had a global economic impact.
“With these emerging and standing risks, it is improbable that the country will return to pre-pandemic levels this year. In fact, discounting the July unrest of last year, the economy remains in an environment where recovery to pre-pandemic levels proves difficult,” said Chen.
FFC researched Siyanda Jones said the Ukraine-Russia conflict presented a global economic threat that would place upward pressure on inflation globally.
“Military action interruptions and sanctions add one more challenge to global supply chains already under strain. Countries that depend on the region’s rich supply of energy, wheat, and other staples will feel the pain of price spikes transmitted throughout the global economy,” said Jones.
Jones said the South African economy continued to experience slow economic growth with low private and public investment growth, poor export capacity, and low productivity, leading to a 6.4% contraction in 2020.
“Signs of a slow economic recovery since 2020 in the third quarter were disrupted by the unrest in KwaZulu-Natal and Gauteng in 2021, in the third quarter,” Jones said.
PBO deputy director Dumisani Jantjies said the situation in Ukraine “poses significant risks to the fiscal framework”.
However, he added: “South Africa, Zimbabwe, and Russia are major global producers of platinum group metals (PGMs). Economic sanctions on Russian may lead to increased demand for South Africa PGMs at higher prices. Such a scenario could lead to higher than expected tax revenue collection from the mining sector.”
DA MP Willie Aucamp said the budget has no room for error and the war in Ukraine will have a huge impact on the South African economy, which is at the mercy of international oil prices, currency volatility, and inflation.
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