Friday | 17 April | 2020
By Reon Janse van Rensburg
On Tuesday 14 April, Finance Minister Tito Mboweni addressed the country and said that the Treasury is currently working on ‘phase 2’ of several economic interventions aimed at helping South Africans during the Covid-19 pandemic. These measures are put in place to minimise the prolonged closure of the economy.
Mboweni said that the measures will include a revision of the country’s fiscal framework that considers the effect of Covid-19 on the fiscus.
“The Covid-19 pandemic is one of the greatest challenges that has ever faced our nation. It is three simultaneous shocks. It is a health shock, which will stretch the resources of our health care system to its limit. It is a global economic shock, which will substantially reduce global economic growth and consequently external demand, and it is a domestic economic shock, because our domestic responses will reduce economic activity, both from a demand side and a supply side,” said Finance Minister Tito Mboweni.
According to the minister it is important to put the health and lives of citizens first, but he added that government should also protect people’s livelihoods.
The economic outlook
Mboweni stated that the economic response will be data-dependant and that government will evaluate and update its response in the fight against the Covid-19 pandemic and its effects on a continuous basis.
The Monetary Policy Committee reduced the interest rates by a further 100 basis points on Tuesday.
The minister also said that the South African economy was already in a recession at the beginning of the Covid-19 crisis and with that said, the situation will most likely worsen the downturn woes. He added that the government’s internal scenario planning has mapped out the economic impact of different lockdown scenarios with consequences of each one.
“Government’s current scenario is that of a deep recession in 2020 that will be followed by an upswing in economic growth,” Mboweni said.
The minister said that the pandemic and the response to it will cause major disruptions to global supply chains.
“Lockdowns in many countries will reduce consumption, and consequently global demand. This will reduce our exports. Global growth has been revised sharply lower. Our economy is also highly dependent on services, particularly tourism. These will be affected by the global travel ban. These are only two examples of how we will be affected by a complex and unfolding global emergency,” Mboweni added.
Phase 2 of the economic policy response
Mboweni said that since the government is using a data-dependent approach to deal with the pandemic and its effects, phase two is still being developed as a set of interventions.
According to Mboweni, the current crisis is an important opportunity for the government to implement structural reforms that will restructure the network industries, liberate SMME’s to the engines of growth and employment, and implement broad-based measures to lower the cost of doing business.
The steps that will be taken include the following:
- Putting forward clear estimates of the additional health care costs that will be needed.
- Reprioritising unnecessary expenditure towards these health care costs.
- The impact of slowdown on projections for revenue.
- It should be costed as much as possible (how much is needed?)
- It should be temporary (clear timeline of one year).
- It must be crafted as a third line of defence for the vulnerable.
- A clear plan to restore fiscal sustainability and limit the pace of debt accumulation.
- Supported by an economic recovery plan (structural reforms) and a set of reforms within the fiscal system e.g. clarity on road tolling, reforming the road accident fund in order to unlock that revenue for the fiscus and core government priorities, and consolidation of public entities and reviewing our portfolio of state-owned enterprises.
The minister said that he and his colleagues in the economic cluster have put together a few proposals on how the economy can be grown and that these proposals will be announced shortly. One of the measures include the expansion of support for SMME lending through the banking system as is similar to other countries.
“Government, through National Treasury, is exploring all funding avenues to finance all Covid-19 related programmes and measures aimed at addressing the pandemic. The funding avenues will not be limited locally, but will include exploring all global partners and international finance institutions. Funding transactions will be announced officially once concluded.”
Mboweni said that the Covid-19 pandemic and the measures that government has taken has had a negative impact on the economic growth and government’s fiscal position. The pre-existing fiscal position was precarious and therefore government must ensure that their next steps do not do more harm in the long run of the fiscal sustainability as its ability to respond to a crisis is weak.
* All information was correct at the time of publication.