Covid-19 | Govt's economic rescue plan a race against time

When President Cyril Ramaphosa ordered a 21-day nationwide lockdown in late March in an address to the nation, South Africans noted the end date on their calendars: midnight on Thursday, April 16.

Many thought that on the following day - Friday, April 17 - South Africans would again be allowed to move around freely, go to a restaurant, drive to work, or stop in at the corner café to pick up a packet of cigarettes. Businesses would reopen and factories would start up. But on Friday the country was still in lockdown after government ordered South Africans to stay home for another two weeks in a bid to slow the spread of the coronavirus.

When Ramaphosa first announced the lockdown, no confirmed deaths due to the virus had been reported. Now the death toll stands at 52, and the latest statistics on infections have triggered speculation that the lockdown may, in some form, may extend well into May with dire consequences for business. Reports that the economy will reopen in stages only added to the anxiety, especially among small business owners.   

SA's economy is already expected to contract sharply this year, with National Treasury projecting a deep recession, followed by a modest upswing in 2021. The Reserve Bank thinks a contraction of 6.1% is likely, the IMF -5.8% and Moody's -2.5%.

But these contractions, all far larger than the 1.5% downturn that SA experienced in the wake of the 2008 financial crisis, may turn out to be too small. Business for South Africa projects the economy could contract by a whopping 10%, and over one million people could become unemployed, as Fin24 previously reported.

Moody's, which downgraded SA's sovereign credit rating to junk just a day after lockdown was instituted, expects government's fiscal position to face increasing pressure. It projects the fiscal deficit to widen to a record high of 8.5%. Treasury, meanwhile, estimated a deficit of 6.8%.

While Ramaphosa is faced with the onerous task of balancing saving lives and saving the economy, there is growing frustration among economists about a lack of urgency in finalising the country's economic recovery plan when the lockdown finally ends. 

It is the responsibility of Cabinet to finalise the comprehensive economic package to save the SA economy, which was already in the doldrums prior to the lockdown. Ramaphosa has already announced some "quick and targeted" interventions such as a Solidarity Fund to help support vulnerable South Africans, as well as using the reserves of the Unemployment Insurance Fund to support employees. Individual ministries have also announced their own relief plans, while some of the country's richest business families have set up funds offering loans for small businesses. 

Hope for a stimulus plan

Treasury briefed Cabinet on its economic proposals on Wednesday, but Cabinet still has not made a final decision and intends to hold another meeting on Monday, 20 April 2020.

Congress of South African Trade Unions parliamentary liaison officer, Matthew Parks, says now was the time to consider using the full range of state's financial resources, including pensions, to invest to keep businesses alive and the economy above water.

"We want a R1 trillion stimulus fund to assist the economy and we need to pool public and private funds. We were already in a recession with 40% unemployment before lockdown. That's not the normal we want to go back to," said Parks.

Parks said the law allows for 10% of pensions to be dedicated towards impact investment, but only 2% of that has been utilised.

In February, before South Africa was thrust into the coronavirus pandemic, Cosatu had already proposed the use of public service pensions to bail debt-laden power utility Eskom out of more than half of its R450 billion debt. The proposal stimulated much public debate on the possible scenarios to stabilise Eskom's debt, but disappeared from the limelight after global coronavirus took centre stage.

On Friday Ramaphosa consulted the  National Economic Development and Labour Council (Nedlac), of which Cosatu is part, on options to mitigate against the economic impact of Covid-19. This was followed with another virtual meeting on Saturday, with the President's Coordinating Council, which made inputs for Monday's Cabinet meeting. The council proposed a gradual easing of regulations accross different sectors of the economy, based hos successful the country was in containing the virus, until the economy is once again operating at full capacity.

As deliberations continue, economists worry that government is running out of time to make big decisions. "I do not know if they are treating this sufficiently urgently," said chief economist at Econometrix Dr Azar Jammine, who expected Cabinet to hold a meeting on Friday and not to wait until Monday.

Economist Mike Schüssler said it was vital to the economy and people's livelihoods that government consider opening as much of the economy as possible, as quickly as possible, with as little risk as possible. "What can we have for businesses to open with the least risk? Because at this point, I don't know which airline or which hotel will be left standing after the lockdown if things continue in this way," Schüssler said.

With that said, food producer Tiger Brands, had to temporarily close one of its largest bakeries in Durban as a precaution after administrative staff there tested positive for Covid-19. Private healthcare provider Mediclinic, meanwhile, had to close down its Morningside facility.

While expectations for Monday's announcement are high, government has already been rolling out some changes to the laws governing lockdowns, including in the country's mining sector, which was already suffering for job losses and under investment. Mines are now allowed to partially come back on stream, Fin24 previously reported. Jammine said the manufacturing industry should be next to resume operations.

Investec chief economist Annabel Bishop expects industries which allow for social distancing as well as hygiene protective gear could follow, but they might not all become fully operational and all at once either. They include the construction industry and the food and agriculture industries.

Retailers could possibly be allowed to sell their products online and telephonically, Bishop suggested. The Independent Communications Authority of South Africa on Friday announced that additional, temporary spectrum would be provided to communication service providers to ensure connectivity throughout the national state of disaster period, which could possibly allow more South Africans to work from home.

Apart from getting some industries back online, government would also have to provide support to those which cannot, such as some small businesses, Jammine said. "I think the government has to step in and do so urgently by providing additional money to these people. Although it is going to strain the budget deficit further, we are not living in normal times," Jammine added.

Financial support

Earlier this week Finance Minister Tito Mboweni said that Treasury was exploring funding avenues to finance government's response to the Covid-19 crisis, from various financial institutions including the World Bank and the International Monetary Fund. Mboweni stressed that such funding would be for Covid-19 support and not for budget support, Fin24 previously reported. Treasury also said that any new deals which are secured will be announced as they are finalised.

This comes amid a push for African countries to secure funding from global lending institutions. The World Bank and IMF have said that the continent needs as much as $114 billion in 2020 to fight the virus, they suggest there may be a $44 billion financing gap. The G20 has agreed to halt debt repayments by the world's poorest countries from 1 May. 

Jammine said that borrowing from the IMF would be ideal as interest rates for Covid-19 support are low. Independent economist Thabi Leoka similarly shared views that Covid-19 support from the IMF would not be "as onerous and strict" as a typical IMF loan.

Revising the budget

Another option that would free funds involves revising the national budget. Mboweni has said that government would have to reprioritise funds from other projects and departments in favour of the health. Although while the finance minister did not say when this revised budget may be announced, it is expected sooner, rather than later.

Leoka, who is also a member of the president's advisory council, said her suggestion to the president was that some projects and government departments which are not serving urgent functions be frozen, to free up funds that can be allocated to more urgent needs. For example, South Africa has one of the highest number of embassies in the world. Furthermore a 10% to 15% cut in government wages may also be useful.

The next challenge for government would probably be to find the best way to get funds to vulnerable as quickly as possible. Jammine suggested government use the existing social grant payment mechanism to distribute funds rapidly. Although resources are also available through the UIF, there may be administrative delays in getting access. "Theoretically government could borrow money from the UIF and disperse it that way without increasing the budget deficit," said Jammine.

- Additional reporting by Jan Cronje 

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