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

The document examines South Africa's use of monetary and macroprudential tools to maintain financial stability during COVID-19, while highlighting the constraints imposed by pre-existing fiscal weakness and junk-status debt. It argues that while the South African Reserve Bank's (SARB) adherence to international standards like Basel III provided critical shock absorbers, long-term growth requires structural reforms and credible fiscal consolidation.

• The South African Reserve Bank (SARB) responded to the pandemic by aggressively cutting the repo rate by 300 basis points to 3.5%, the lowest level in the country's history and below zero in real terms. The SARB opted for conventional monetary policy over quantitative easing because it maintained its inflation target and utilized its balance sheet for crisis management rather than economic stimulation.
• To support the banking system and ensure liquidity, the SARB and the Prudential Authority (PA) implemented several relief measures: purchasing government bonds on the secondary market, establishing a small and medium enterprise funding facility (initially R100 billion, scalable to R200 billion), and reducing the liquidity coverage ratio from 100% to 80%.
• The Prudential Authority provided capital relief by reducing the Pillar 2A capital buffer from 1% to zero and allowing banks to use their 2.5% capital conservation buffer. These measures were designed to allow banks to assist clients in good standing without attracting higher capital charges on restructured loans.
• South Africa's ability to withstand the pandemic's financial shock was underpinned by long-term adherence to international regulatory frameworks, specifically the phased implementation of Basel II (starting January 2008) and Basel III (completed in 2019), and the adoption of the 'Twin Peaks' model of financial regulation.
• Despite a resilient banking system, South Africa faced profound fiscal weakness during the pandemic, characterized by a debt-to-GDP ratio on a rising trajectory and crisis-level deficits exceeding 6% of GDP in 2019. This vulnerability led to a junk rating by Moody's Investors Services in March 2020 and the subsequent removal of South African debt from the Financial Times Stock Exchange World Government Bond Index on April 30, 2020.
• South Africa leverages its membership in the G20 and other international forums to advocate for African interests and ensure global regulatory standards do not have unintended negative consequences for developing countries, such as the decline in correspondent banking caused by Basel III de-risking requirements.

APA

Shipalana, P. (n.d.). Macroeconomic Policy Development Lessons Learnt from South Africa during COVID-19. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2021/05/Policy-Insights-01-shipalana.pdf

Chicago

Shipalana, Palesa. Macroeconomic Policy Development Lessons Learnt from South Africa during COVID-19. South African Institute of International Affairs, n.d. https://saiia.org.za/wp-content/uploads/2021/05/Policy-Insights-01-shipalana.pdf.

Wikipedia

{{cite report |last1=Shipalana |first1=Palesa |title=Macroeconomic Policy Development Lessons Learnt from South Africa during COVID-19 |publisher=South African Institute of International Affairs |url=https://saiia.org.za/wp-content/uploads/2021/05/Policy-Insights-01-shipalana.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{shipalanandmacroeconomic, author = {Shipalana, Palesa}, title = {{Macroeconomic Policy Development Lessons Learnt from South Africa during COVID-19}}, institution = {South African Institute of International Affairs}, url = {https://saiia.org.za/wp-content/uploads/2021/05/Policy-Insights-01-shipalana.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }