Business Maverick


A counter-cyclical R800bn boost into the heart of the economy – Mboweni

A counter-cyclical R800bn boost into the heart of the economy – Mboweni
Finance minister Tito Mboweni delivers his budget speech in parliament on 26 February 2020 in Cape Town. (Photo: Leila Dougan)

Finance Minister Tito Mboweni said on Friday that the state’s combined fiscal and monetary response to the economic damage wrought by the lockdown and Covid-19 pandemic is over R800-billion.

 “A counter-cyclical boost directly into the heart of the economy.” That was how Finance Minister Tito Mboweni described the government’s R800 billion arsenal for South Africa’s coronavirus battle.

In a televised briefing on Friday, Mboweni warned against any temptation to take “an easy path” and also struck a decidedly nationalist tone on the issue of labour markets.

“Our focus has been on how to use the levers of macroeconomic policy, fiscal and monetary policy, in a way that delivers an immediate, targeted and clear response.

“Wisely used together, these key levers can deliver a counter-cyclical boost directly into the heart of the economy. But if these two levers work against each other, or if the levers are used incorrectly, then we can be left substantially worse off. We must be careful not to choose a path that seems easy, or too good to be true. The easy path leads more often than not to a bad destination; and, if something seems to be too good to be true, it probably usually is,” he said in prepared remarks.

Mboweni did not specify what the easy or “too good to be true” path was, but printing money or throwing it around willy-nilly came to mind. He did later stress that money was not going to be printed to address the crisis.

Also, structural reforms needed to be implemented. Not implementing them would be one “easy path”.

Big numbers that almost look too good to be true are out there. However, they do seem to have a real foundation.

“We must always balance short-term fiscal and monetary policy interventions with long-run sustainability. Working under the leadership of our President, we calibrated a fiscal package of approximately R500 billion. [Reserve Bank] Governor Lesetja Kganyago has already unveiled a monetary and policy package.

“This will bring additional life into the whole financial system and will utilise the combined balance sheet of the country in a careful but appropriate way. This takes our total, economy-wide measures over R800 billion,” declared Mboweni.

Of the R500 billion on the fiscal side injection, R130 billion is coming from a juggle of the current Budget.

“We are going all out to throw out all items from the Budget which can be postponed,” said the Minister, pointing to sectors such as tourism because there is no tourist activity at the moment.

Mboweni can be refreshingly blunt, but also touchy.

He appeared to misunderstand a question about potential International Monetary Fund financing which referenced the low interest rates on offer — rates reportedly low as 1%, which South Africa, with its “junk status” credit rating, could never dream of negotiating in financial markets.

Instead of answering the question, he went on a riff about making “mountains out of anthills” on the issue of the IMF.

Credit facilities the IMF is making available now — with South Africa entitled to borrow up to $4.2 billion — are specifically for the Covid-19 crisis and do not have the usual “structural adjustment” criteria, such as budget cuts, attached.

In fact, the IMF is encouraging governments to open the fiscal and monetary floodgates. This is fairly widely known now, but Mboweni acted as if it was not. Perhaps he wanted to make it clear once and for all for some of his critics on the left.

“How can we take full advantage of this crisis?” he asked at one point, speaking of “a new economy altogether” including “a new airline from the ashes of South African Airways”.

He said new institutions could rise from the crisis, such as a National Agriculture Board to identify things like underutilised land that could be made productive.

On the question of the Land Bank, which has signalled a debt repayment default, he said the Treasury was in consultation with it and its creditors and “we will do whatever we can to support the Land Bank”.

Mboweni further said: “Our focus on structural reforms must continue. We cannot stop on structural reforms.”

He then added a touch of nationalist rhetoric concerning labour market policies.

“In 1990, when I returned to South Africa from exile, eight out of 10 workers at the restaurants were South African and two probably Malawian or Zimbabwean. And today almost 100% is non-South African. So the new economy that we are getting after the lifting of the lockdown must answer that question.

“Any establishment wanting to reopen must have a new labour market policy which prioritises South Africans but must not discriminate against Zimbabweans or Malawians. But the proportion of South Africans working in a restaurant must be greater than that of non-South Africans. That’s a new economy we are talking about.”

He said such new, nationalistic criteria needed to apply to the agricultural sector as well.

“People who want to approach banks or government for funding must demonstrate that they have a labour market employment policy that favours South Africans. Nothing xenophobic about that,” he said. BM

This article was updated at 5.30pm on Friday, 24 April, 2020.







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