Assessing the nexus between fiscal policy, COVID-19, and economic growth

The COVID-19 issue deteriorated South Africa’s already dire economic situation, exacerbated by years of considerable debt increase. The COVID-19 pandemic has disrupted trade to such an extent that some enterprises are barely working at a quarter of their potential. Furthermore, economic agents delay economic decisions while waiting to see how the crisis develops. According to some economists, increased government expenditure will raise GDP enough to keep the country’s debt-to-GDP ratio steady and restore fiscal sustainability. We use a panel data model to estimate a fiscal reaction function, which we then apply to historical data to assess the government’s prior efforts to maintain or restore budgetary sustainability. We calculate the impact fiscal balance, government expenditure, interest rate, and revenue changes that the government will have to make to restore the country’s fiscal stability due to the financial impact of the COVID-19 issue.The findings show that fiscal balance and tax revinue have a significant impact on the economics growth, while government expenditure and corruption reduce the growth of the country.