The impact of the coronavirus pandemic on the locked-down South African economy will be severe. A recession deeper and more sudden than the last will be felt globally and the pain will be felt especially acutely in our already struggling economy.

In response, our economic leaders in the South African Reserve Bank and National Treasury will need to be bold and creative and put aside ideology and orthodoxy. Recent moves are an encouraging start.

The Reserve Bank’s decision last week to slash interest rates by a full percentage point is welcome, even if it won’t be enough on its own. Inflation is no longer a primary concern, especially since the oil price tanked. Lower interest rates cheapen lending for government, firms and consumers. Under a nationwide lockdown, when many incomes are more vulnerable than ever before, reducing the cost of lending is helpful.

Since then, the Bank has announced two further measures to add liquidity to the strained financial system, including a programme of purchasing an unspecified number of government bonds. Until very recently, pursuing the quantitative easing measures that have proved effective in rich countries was considered a radical idea.

The Reserve Bank must continue to show flexibility. Further rate cuts and liquidity injections will be necessary, and soon.

These moves are a sign that the usually hawkish governor Lesetja Kganyago appreciates the gravity of the moment and recognises that stubborn commitments to mandates are unhelpful in times of crisis. The governor is finally spreading his wings – old limitations no longer apply.

But monetary tools can only go so far. The pandemic is both a supply and demand shock, so fiddling with interest rates is just a small part of the solution. The Reserve Bank is the lender of last resort, but it cannot create solvency – even with aggressive quantitative easing. Making loan repayments cheaper is all good and well until you run out of money entirely. It is time for the Treasury to join the party as the borrower and spender of last resort.

Less than a month ago, Finance Minister Tito Mboweni, another stubborn statesman, delivered a national Budget intent on reducing spending and bringing debt under control, committing to saving R260 billion over the next three years, largely by cutting the public sector wage bill.

Mboweni noted that the budget deficit had hit an alarming 6.8%, with debt-to-GDP set to reach 70% by the end of next year. The pursuit of “fiscal sustainability” (read austerity) was intended to stop, or at least delay, an almost-certain final ratings downgrade by Moody’s at the end of this month.

That Budget is now extinct. At the best of times, Mboweni’s austerity pledge warranted criticism in a country with an official unemployment rate of 29% and growth hovering above zero (there is no point in trying to reduce debt-to-GDP when the denominator has no hope of growing). Now there is no choice but to spend.

First, the underfunded Department of Health will need extensive support. Expanding coronavirus testing and improving resources in hospitals should be prioritised. But the more difficult, and more costly, intervention is in the wider economy affected by the State of Disaster. This is where creativity and collaboration are essential.

President Cyril Ramaphosa understands this. His speech on Monday night included a number of announcements aimed at mitigating the impact of the lockdown on people and businesses.

The Temporary Employee Relief Scheme (TERS) will assist distressed companies and avoid retrenchments. Other interventions include temporary tax breaks for small business and expanding the Employment Tax Incentive for the four million earning under R6,500 a month. He also highlighted the development of a safety net to support the vulnerable informal sector. There is also talk of a National Disaster Benefit in which retrenched workers would be eligible for the R3,500 national minimum wage.

These are all necessary interventions representing the minimum that a capable developmental state should provide.

But how can the country afford it? There is very little fiscal room, at least according to last month’s Budget. Interest rate cuts will make government borrowing slightly cheaper, but bond investors are running scared from volatile emerging markets such as our own.

Most of the required funding will be sourced from state surpluses, primarily in the Unemployment Insurance Fund (UIF). The UIF surplus is somewhere around R150 billion, while the Compensation Fund and Public Investment Corporation (PIC) will provide another few billion. The Industrial Development Corporation and Departments of Small Business and Tourism are also contributing a combined R3.5 billion, much of which is set aside for essential medical supplies.

The creation of the Solidarity Fund will provide more funding from private contributions. Ramaphosa is cleverly cashing in on both his impressive ability to generate widespread support and the unique moment of national solidarity.

It is an example of the creative problem-solving that is needed. The R2-billion contribution from the Rupert and Oppenheimer families vindicates this approach, even if one must be critical of how two people can hold such vast wealth in this country.

The financial sector – for once in a relatively strong position during a financial crisis – must step up and act as the private sector heroes, just as wartime manufacturers switched to producing munitions.

Government has engaged banks to develop common relief measures (temporarily suspending provisions in the Competition Act), which should include suspensions and concession periods for creditors. Standard Bank has set the tone by announcing a payment holiday for student loans and small businesses.

Ramaphosa must continue to collaborate with big business and ensure it takes up its part of the social compact. This time, the banks don’t need bailing out – the people do.

To be clear, these measures are not “stimulus”. They are simply filling in the gaps created by the lockdown. However, this could be a chance for the state to both tackle the spread of the virus and invest in lasting infrastructure that will have long-term benefits.

Astonishing headlines such as “water, sanitation prioritised in informal settlements to curb coronavirus” show that these services can be provided with urgency. For instance, building fully stocked public toilets at transport hubs such as taxi ranks would both limit the spread of the virus and provide a public good that will benefit millions of taxi users in future.

Just as we are accepting a “new normal” of social distancing and hunkering down in our homes, the successful implementation of heterodox economic policy should lead to a new normal in our economic policymaking once this crisis is over.

Our policymakers should never again be held back by orthodoxies that will be proven defunct by this crisis.

This emergency has already allowed the President to flex his leadership mettle. Hopefully, other areas of government will do the same.

I have already mentioned the newfound commitment to “prioritising” water and sanitation. Maybe the virus will force other actions that should have been made long ago, such as fast-tracking energy procurement according to the new Integrated Resource Plan or ditching the doomed SAA. This crisis could be just the spark this ANC-led government needed.

Negative growth in 2020 is all but a certainty. Foreign investment, the elusive lodestar guiding our economic policymakers, was never on its way, even before the pandemic decimated global markets.

This is a chance to not only spend to mitigate economic disaster, but to rebuild our economy for the long run. To seize this opportunity, our economic leaders must get creative and let go of old constraints. DM