- Finance Minister Tito Mboweni will table an emergency budget next week, which will provide details on plans to fund responses to the Covid-19 crisis.
- Cosatu is calling on the government to unveil an “audacious” plan in response to the economic crisis brought on by the pandemic.
- An infrastructure programme might be an option to generate growth and create jobs, but the government can’t fund this alone.
When Finance Minister Tito Mboweni tables his emergency budget next week, all eyes will be on how he plans to finance a stimulus package to support SA’s struggling economy in the face of a global pandemic which has brought about the most severe global recession since 1929.
This is no time for a “timid” or “underwhelming” budget, and the government will have to rise to the occasion to rebuild the economy, said Matthew Parks, parliamentary coordinator for labour federation Cosatu.
Cosatu is an alliance partner of the ANC and a key backer in President Cyril Ramaphosa’s push to replace his predecessor more than two years ago.
The federation wants the finance minister to unveil an “audacious” response to the economic crisis, he said.
It will be a tall task, given that the SA economy has failed to breach the 2% growth mark over the past five years.
A nationwide lockdown, instituted in late March to slow the spread of the coronavirus, has exacerbated a recession.
The lockdown, which has been progressively eased, brought the economy to a halt by initially requiring the majority of SA’s businesses to close. Not all have been able to reopen. Mining production fell by more than 50%, its largest plunge ever, while millions applied for unemployment insurance.
Tax revenues, meanwhile, may be 15% to 20% lower than expectations, creating a massive hole in the country’s finances.
The Reserve Bank has projected it will contract by 7% – this is at a level last seen during the Great Depression of the 1930s. Other analysts, however, project contractions anywhere between 8% and 12%.
Treasury is projecting job losses of 1.8 million in a worst-case scenario.
The state’s main intervention has been the announcement in mid-April of R500 billion in fiscal stimulus to help cushion the blow to businesses and consumers.
The stimulus plan, according to a Treasury document, includes about R95 billion in funding from international finance institutions, and R200 billion in state-guaranteed bank loans. The international funding is still outstanding, while according to Banking Association of SA, only R7 billion in loans had been approved by the first week of June.
When Mboweni tables the special adjustment budget, he will unpack further details on how this stimulus will be financed, partly with R130 billion reprioritised from the fiscus.
Ramaphosa, on Thursday, told Parliament that the creation of jobs must now be the state’s key aim. He said jobs would be created by expanding public employment and upping investment in public infrastructure – without providing details.
The presidency will next week bring to together funders, policy markets, state-owned enterprises, academics and members of the private sector to look at investment opportunities in infrastructure, he said.
Rebuilding the economy
“The most critical challenge now is to save and rebuild the economy,” Parks said, with the labour federation wanting to see a stimulus plan of no less than R1 trillion.
“Anything less will not be able to stop an economic tsunami that is on the horizon.”
The world’s leading economies, such as the US and China, as well as other emerging market nations, have announced significantly larger stimulus plans for their economies in the face of the transformational nature of the threat posed by the Covid-19 pandemic.
The SA government does not have the funds to launch a massive investment drive, said Hugo Pienaar, chief economist of the Bureau of Economic Research. An “easy win” would be to promote green energy investment, which would potentially attract private sector players.
“Infrastructure will be a key pillar in the road to recovery. It will need close cooperation between government and the private sector to get that going,” said Pienaar.
Business Leadership SA CEO Busisiwe Mavuso says that, to stimulate the economy, the government would need private investment – and, in order to attract that investment, the state would have to grow confidence among investors.
“The worry is that we might see a recurrence of 2009. We decided to embark on an effort to stimulate the economy through investment, which led to industrial scale looting. There is private sector capital that can be spent on investment and infrastructure,” she said.
But the private sector may not be in a position to invest, with business confidence plunging to an all-time low in May, and firms announcing salary freezes and job cuts in reaction to the economic shock caused by Covid-19.
According to the World Bank, global GDP is expected to contract by 5.2% in 2020, and lower investment will be one of the pandemic’s “lasting scars”.
Mavuso said the business community would appreciate more clarity on the government’s reallocations and provisions in preparation for the pandemic.
Mboweni is expected to outline a response to the loss of tax revenue, as a result of Covid-19 measures. SARS has projected a revenue shortfall of up to R285 billion in its worst-case scenario, when compared to the target of the February budget.
Efficient Group economist Francois Stofberg says a first critical step to changing SA’s economic fortunes would be for the government to spend more efficiently on the right things, such as supporting the poor through difficulties and spending less on public service wages.
“In a perfect world, you would like to see a pro-business restructuring of the system. We give the necessary support for 2020 by increasing social expenditure for low income households to get them through this tough time, keep enterprise alive,” said Stofberg.
If Mboweni says the right things, the rand will strengthen, the markets may jump immediately, and the South African economy could be set to grow by as much as five percent. But that is not what is actually going to happen if the political and economic dynamics do not allow it, he said.
Last week, during the National Assembly debate on the Appropriations Bill, Mboweni said for the foreseeable future the country will have to start working with a “zero-based budget”.
This means that expenditure items will have to be justified in terms of that which is absolutely necessary. Each year, the budget will be drawn up from scratch, and not based on the previous year’s expenditure items. It may have the impact of reducing fruitless and wasteful expenditure.
Old Mutual chief economist Johann Els casts some doubt on the minister’s ability to use the “zero-based-budget” approach next week. In fact, it could be a number of years before this happens, as there are “logistical” issues to sort out, he said.
Els said he is interested in hearing about whether there are any policy announcements to roll out structural reforms and if there is any progress in Ramaphosa’s “social compact” between government, business and labour to chart a way forward for the economy.
If Mboweni mentions progress in this regard, it would be positive.
“Stronger economic growth going forward is what everyone needs… Everyone will benefit from stronger economic growth, it’s just to get everyone to agree in terms of what path we will follow to get there,” said Els.