Much of Finance Minister Tito Mboweni’s Covid-19 health emergency spending revisions depend on getting the go-ahead from Cabinet, which on Wednesday will consider a package of economic proposals. Unlike the constitutionally independent South African Reserve Bank – it unanimously decided on a second 100 basis point cut in less than a month to bring the repo rate to 4.25% – Mboweni needs the political buy-in from his Cabinet colleagues. And here words matter.
“We’ve not really called it that (emergency Budget),” said Mboweni during Tuesday’s teleconference briefing when he confirmed Budget revisions across government to “substantially reallocate Budget towards fighting the virus, and the mop-up. The Department of Health cannot be found wanting… We must be careful not to take too much resources away from growth-enhancing things”.
But Mboweni acknowledged his formal statement on the revised Budget would have to happen “very soon”.
“No, we can’t wait for October (and the Medium-Term Budget Policy Statement). These Budget revisions are happening almost daily,” added Mboweni. “We’ll have to make a consolidated budget statement, fully aware it’s a bit of a moving target… I will have to come back to the country and tell how we see the figures.”
Perhaps holding a briefing on the eve of Wednesday’s Cabinet meeting wasn’t the best of times. The pressure was on to say exactly what is in the offing, but few details emerged.
Yes, temporarily adjusting child support grants and/or pensions is under consideration. Yes, there should be further support to SMMEs that are crucial to recovery and also to the overall economic reforms.
Yes, the “reallocations of unnecessary spending” to fund Health in its anti-Covid-19 measures and “growth-enhancing measures” are made across government. Yes, National Treasury had done economic modelling on three different lockdown scenarios.
No, there are no confirmed rands and cents yet on lockdown-caused loss of revenue like Value-Added Tax (VAT) or excise duty because of the alcohol and cigarettes sales ban.
“I have to wait where they (Cabinet) want to go before I can give you the details,” said Mboweni, describing the economic proposals as a “huge agenda item”, and adding later:
“We thought we tell you what we can. If that is not sufficient, I am sorry about that. The turn of events is that it’s difficult to plan in advance. I can’t tell you what’s contained in Cabinet documents before Cabinet has discussed them.”
Even on the crackly teleconference line, the ministerial frustration was palpable. Economists and analysts have had their say – and did not mince their words.
Intellidex analyst Peter Attard Montalto, in a recent brief, argued economic growth would end up minus 6.8%, while job losses could stabilise at 1.1-million “of which a large proportion may become permanently unemployed. Such figures raise serious long-term questions around the benefit system… as well as the broader social contract and instability.”
The cost of the lockdown is R13-billion a day according to a paper arguing for its replacement — written by authors representing health and economics academia and civil society, Shabir Madhi, Alex van den Heever, David Francis, Imraan Valodia, Martin Veller and Michael Sachs.
And the SA Reserve Bank also got its say after having brought forward its May Monetary Policy Committee Meeting when the lockdown was extended.
Gross domestic product (GDP) forecast was revised down by 6.1%, compared with 0.2% three weeks earlier while economic growth is now expected at -2.9%.
With the lockdown extended, businesses stay shut for longer and households spend less.
“This will likely also increase job losses, with further consequences for aggregate demand. The impacts will be particularly severe for small businesses, and individuals with earnings in the informal sector,” cautioned the SARB statement.
But that may not be the end amid fast-moving Covid-19-triggered dynamics. Or as SARB Governor Lesetja Kganyago put it during the briefing: “It’s a nightmare for forecasters right now.”
But the unanimous 100 basis points cut in the repo rate, which effectively means the prime lending rate has now dropped to 7.25%, triggered plaudits from the ANC and Cosatu, although it wasn’t quite enough.
“We, therefore, urge our central bank to use this period to further unlock radical measures to support the economy in this unprecedented crisis…” said a statement from the ANC, which at its 2017 Nasrec conference resolved the SARB needed to be nationalised.
Cosatu called for a further 75 basis points cut, and for the SARB to be hands-on so that the benefits of lower interest rates are passed on to consumers.
“All commercial banks, as well as other financial lenders, need to provide interest-free loan holidays to all consumers in need… We expect the Reserve Bank to ensure banks lend for productive purposes that create jobs or boost GDP, instead of consumption or for assets, causing asset price inflation,” the trade union federation said in a statement.
The consensus is the lockdown had bought South Africa time to get in place the necessary health systems, from large-scale and widespread testing to ventilators and field hospitals.
Making sure Health gets the resources it needs is Mboweni’s job – one he deliberately framed within the need to save lives. “The health and lives of our fellow South Africans must come first. An out-of-control pandemic would hit the economy extremely hard…”
Amid this agreement, how to mitigate economic devastation has created divergence in Cabinet. Mboweni gave as much away in his comments on discussions over the booze and cigarette sales ban.
“The loss of revenue from cigarettes and alcohol clearly will have an impact. My colleagues in Cabinet say it must be looked at with respect to fewer emergencies, fewer fights, fewer stabbings… That’s a debate I’m having with my Cabinet colleges. It (alcohol and cigarettes ban) has revenue implications. I would have liked to have it otherwise…”
In politics, battles must be picked, and picked carefully. Perhaps this is one to let go to gain a better position for getting around $60-million borrowings for South Africa’s health measures in the Covid-19 pandemic.
Not ruled out is approaching international financial institutions like the International Monetary Fund (IMF), World Bank, African Development Bank or the Brics New Development Bank.
This has been rejected “to safeguard South Africa’s democratic national sovereignty” by the governing ANC in a joint statement with its alliance partners Cosatu and the South African Communist Party (SACP) on 5 April after an Alliance Secretariat meeting.
But on Tuesday, Mboweni made it clear South Africa was talking about financing health measures – with everyone.
“We are not looking for Budget support. We are looking for Covid-19 packages to access. We are looking for support that is not accompanied by structural adjustment… This is an international resource mobilisation in addition to our own domestic efforts.”
Regardless of politics, politicking and ideology, the reality is declining revenues due to the Covid-19 lockdown, a further slide into recession, alongside joblessness and crushing business shutdowns, particularly in the SMME and informal sector. Only so much unnecessary government spending is still up for cuts after years of this very same approach.
Something must give.
Wednesday’s Cabinet decisions will be crucial for South Africa’s path though the Covid-19 pandemic – and the post-lockdown body politic. DM
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