South Africa

Covid grant will be made permanent – Bank of America

Social grants

South Africa’s social relief of distress (SRD) grant, created during the Covid pandemic, will be made permanent despite the risks to the country’s fiscal health. 

This is feedback from Bank of America in its ‘Emerging EMEA: South Africa – election, cuts and budget’ report. 

Bank of America senior economist Tatonga Rusike said South Africa’s finances will remain under severe pressure over the next two years. 

The pressure will come from the government’s consistent bailouts of state-owned enterprises, including Eskom and Transnet, as well as the payment of grants to a growing share of the population. 

According to Bank of America’s analysis, the SRD grant alone costs up to 0.5% of South Africa’s annual GDP. 

This grant has been extended repeatedly on an annual basis since 2020 and was extended until beyond the elections this year. 

Rusike said the bank has taken the position that the SRD grant will be made permanent as a basis for an eventual basic income grant. 

“The mechanics of withdrawing it have proved difficult given structurally high unemployment and a looming election in May 2024. Discussions and technical work have focused on how to make the social grant permanent,” he said. 

This presents a significant risk to the country’s finances, which are already under severe strain as debt-to-GDP is set to peak at 77.7% in 2025/26. 

Particularly worrisome is the sheer number of South Africans dependent upon grants to fund their livelihood. 

President Cyril Ramaphosa said the ANC’s pro-poor policies mean 28 million South Africans receive grants – far more than the country’s 7.1 million taxpayers.

“We have done a great deal in the provisioning of grants,” he said during the ANC’s birthday celebrations. He added that no African country pays grants to 18 million people.

Add to that the 10 million people who continue to receive R350 SRD grants, and the government has 28 million people on grants.

To put it in perspective, when South Africa became a democracy in 1994, the state paid grants to around 2.5 million people.

The grants were primarily old age grants, disability grants and state maintenance grants – the predecessor of the child support grant.

Fast forward 30 years, and there has been a 1,000% increase in people getting money from the state. “Today, all those people are assisted and supported by our government,” Ramaphosa said.

However, he failed to mention that it is because of destructive policies, corruption, and mismanagement that most people need grants.

Instead of having business-friendly policies that encourage investment, grow businesses, and create jobs, the government actively destroys business confidence.

Its policies chase capital out of the country and make investing and building a business in South Africa unattractive.

The result is that South Africa only had 7.1 million individual taxpayers last year, down from 7.4 million a year ago.

It means South Africa now has four times as many grant recipients as individual taxpayers, which many economists warned is unsustainable.

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