Finance Minister Tito Mboweni has announced that more than R800-billion will be injected into the economy to help alleviate the negative effects of Covid-19.
Although this is a huge sum, he noted that South Africa “is facing extraordinary times and enormous economic challenges. We have, however, got the human and other resources, and the resilience as a nation to overcome this challenge.”
Mboweni said R500-billion will come from the fiscus, with R130-billion coming from shifting money between government departments. This means some programmes would be delayed.
“All [budget] items that can be postponed will be postponed and we are redirecting money to this [coronavirus] initiative,” he said.
He added that the action already taken by the South African Reserve Bank meant that, effectively, R500-billion more was also being injected into the economy. This includes the second cut in the repo rate earlier this month.
Mboweni said the government’s aim is to bolster the economy by using both fiscal and monetary policy “in a way that delivers an immediate, targeted and clear response”.
This will bring additional life into the financial system, while the careful and targeted use of what money South Africa will ensure the response reaches the people who need relief the most. “We must always balance short-term fiscal and monetary policy interventions with long-run sustainability.”
He said the government response comes in five components.
The first is in allocating R20-billion to the health sector. The second is R50-billion for people who have been hard hit by Covid-19. This amount includes R350 for people who are unemployed and an increase in the caregiver grant of R300 in May and R500 thereafter. All other grants will be increased by R250. These measures will last for the next six months.
Other measures include support for companies, which includes a set of tax relief initiatives and support for employees, the phased re-opening of the economy and supportive monetary and financial market measures.
The minister said R200-billion will be given to firms to keep them afloat.
Mboweni raised concerns about the country’s fiscal choices. The country hit junk status, which means the cost of borrowing money has increased. Badly-run state enterprises have also put enormous pressure on the budget.
With more debt to be added, he said solutions to these problems need to be found quickly.
Mboweni will table a new budget, which is expected to reflect the changed fiscal framework.
But it is unlikely to include the increases in social grants announced earlier this week. He emphasised that these increases are part of the government’s temporary measures to cushion society’s most vulnerable as the country grapples with the coronavirus.
“People are going to say something once given cannot be taken away, but that’s not correct,” he said. “These are temporary measures, not permanent measures … In October [they] will be lifted.”
Although the government plans to direct a large portion of the budget towards its social and economic measures in the face of the pandemic, Mboweni told reporters on Friday that the country’s growth enhancing initiatives would continue, but with less money than previously budgeted.
These include large infrastructure spending in collaboration with the private sector in preparation “for when the economy starts moving again”.
“It might not be the full amount that we budgeted for in February but that infrastructure must continue being in the economy … because that is part of lifting the economy going forward,” he said.
Other budget items that may be sacrificed are funds for the tourism sector, because “it doesn’t make sense to keep budget items in a situation where tourism is not taking place”, Mboweni said.
He said the treasury has begun discussions with international finance institutions to help fund the country’s R500-billion stimulus package. These include the International Monetary Fund, which has already said South Africa is entitled to as much as $4.2-billion in emergency funding. The country could also be looking at between $55-million and $60-million from the World Bank for its Covid-19 initiatives.
Mboweni scoffed at criticism of South Africa turning to the Washington-based finance institutions, saying that those who criticise the government’s stance on the matter are making “a mountain out of an anthill”.
“South Africa is a member of the IMF and the World Bank. We pay our subscriptions on a regular basis and therefore we are entitled to approach those institutions if we so need,” he said.
He added that loans from these institutions do not come with the usual conditions, because they are Covid-specific financial assistance.