President Cyril Ramaphosa announced a R500-billion stimulus plan on Tuesday 21 April, to inject life into an economy on a Covid-19 ventilator. Much of the focus is on the poor and vulnerable, but it falls short of what some of the ANC’s alliance partners such as Cosatu wanted. And the IMF was mentioned as a source of funding, which will make them see red.
Cosatu and some other groups linked to the ANC wanted a trillion rand, but R500-billion is about 10% of South Africa’s GDP, which is contracting as you read this, so it may soon amount to a bigger percentage. A lot of political wrangling would have gone into this but Ramaphosa needed to do something bold and big.
“The pandemic requires an economic response that is equal to the scale of the disruption it is causing,” he said in a televised address.
Money does not grow on trees – Finance Minister Tito Mboweni is in the Cabinet to remind his colleagues of that salient fact of economic life – and so R130-billion will come from juggling the current Budget. What gets cut and redirected will be announced in the coming days.
“The rest of the funds will be raised from both local sources, such as the Unemployment Insurance Fund, and from global partners and international financial institutions. To date, the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank have been approached and are working with the National Treasury on various funding transactions,” he said.
The ANC’s “Radical Economic Transformation” brigade has expressed its displeasure about approaching the IMF, but the times have changed. Austerity, budget cuts and “structural adjustment measures” are out. According to Bloomberg News, Montfort Mlachila, the IMF’s senior resident representative in South Africa, said that no such conditions would be attached through emergency funding measures, and Pretoria could access up to $4.2-billion, close to R80-billion, at an interest rate of 1%. “Junk status” South Africa could not possibly hope to get 1% for its debt anywhere else.
The president also announced a temporary six-month coronavirus grant, added to existing social grant recipients.
“We will direct R50-billion towards relieving the plight of those who are most desperately affected by the coronavirus,” he said
Beyond that “is the economic strategy we will implement to drive the recovery of our economy as the country emerges from this pandemic. Central to the economic recovery strategy will be the measures we will embark upon to stimulate demand and supply through interventions such as a substantial infrastructure build programme, the speedy implementation of economic reforms, the transformation of our economy and embarking on all other steps that will ignite inclusive economic growth”.
That remains rather vague at this point but Ramaphosa said it will be outlined in coming days, with a focus on four areas: an extraordinary health budget, the relief of hunger and social distress, support for companies and workers, and the phased reopening of the economy.
There will also be a “R200-billion loan guarantee scheme in partnership with the major banks, the National Treasury and the South African Reserve Bank” to provide financial relief to companies and workers.
In another extraordinary measure, the president said that “R40-billion has been set aside for income support payments for workers whose employers are not able to pay their wages.”
He also offered his support for the radical steps taken by the central bank.
“The South African Reserve Bank has also made an important contribution to support the real economy. In line with its constitutional mandate, it has cut the repo rate by 200 basis points, in effect unlocking at least R80-billion in the real economy, and taking other steps to provide additional liquidity to the financial system,” he said.
South Africa’s economy is in for a rocky ride, but the government is stepping up to the plate. It is a delicate balancing act between saving lives and saving livelihoods. The only thing that is certain in these uncertain times is that policies, and the sums involved, will still be adjusted in the weeks and months ahead. BM