- Government could have been more ambitious in its fiscal response to Covid-19, says the Financial and Fiscal Commission.
- While existing channels for social relief have been effective in distributing funding, the same can't be said of new relief measures.
- Government might have to extend the R200 billion loan scheme to assist more firms.
Government could have been more ambitious its fiscal response to the Covid-19 pandemic, according to the Financial and Fiscal Commission.
The commission is constitutionally mandated to make recommendations to Parliament, government and other organs of state on financial and fiscal matters.
During a virtual briefing on Monday, the commission unpacked some of its recommendations to Parliament on the 2021/22 Division of Revenue. In his opening remarks, chairperson Professor Daniel Plaatjies noted the devastating impact of the Covid-19 pandemic on the economy and society.
"Covid-19 and the subsequent lockdown have worsened an already precarious socio-economic situation," he said.
While government has instituted a R500 billion stimulus package to cushion the blows to households and firms, the FFC is of the view that Treasury could have been more ambitious and introduced more spending into the budget. The R500-billion stimulus is partly accounted for through R130 billion reprioritisation of spending items on the February budget, a R200 billion government guaranteed scheme, which is essentially funded by private banks, and as much as R95 billion borrowed from multilateral institutions.
Crisis still unfolding
Speaking at the webinar, deputy chairperson Professor Michael Sachs addressed government's R500 billion stimulus package and its effectiveness in addressing socio-economic challenges brought on the pandemic such as unemployment and loss of income. "Lockdown is finishing, or seems to be easing. But the economic crisis is still unfolding," said Sachs.
"We are yet to see the extent of the damage- not only to small firms and the informal sector, but large corporations in the economy that sustain the bulk of the wage bill," he said. "We are close to the end of the beginning, rather than to the beginning of the end."
Sachs pointed out that South Africa has a borrowing requirement of R700 billion, the recent loan from the International Monetary Fund to support Covid-19 relief is merely 10% of that or R70 billion. "[It's] rather a small amount compared to overall borrowing requirement of government," said Sachs.
"The financing of the Covid-19 response is entirely through reprioritisation, [Treasury] could have added more spending into the budget, even if not through large quantities" said Sachs. Spending enabled through reprioritisation displayed a "lack of ambition" he said.
Apart from spending, the other issue has been implementation. The uptake of the R200 billion scheme has been dire, with only about R10 billion distributed so far to businesses in need. Sachs explained that it's not that the amount of resources allocated, but the design of the programme which has had a limited reach than expected.
The Covid-19 special grant of R350 and the TERS/UIF benefit scheme have also had shortcomings in their effectiveness, Sachs explained. While the rollout of top-ups on existing grant systems have been effective, the new "channels" or schemes have been "disappointing".
Given the damage to the economy, there might be a need to extend the credit guarantee scheme and other support measures going forward, Sachs added. For example, the R200 billion scheme might be needed to extend support to more firms in the economy – currently it is targeting small firms.