Treasury's director general, Dondo Mogajane.
The wheels of the economy will slowly start turning again on May 1, when about 1.5-million people are expected back at work after five weeks under lockdown to contain the spread of Covid-19.
Conservative estimates indicate that just under a million South Africans could lose their jobs as a direct result of the economic decline in activity.
As of Monday the Unemployment Insurance Fund (UIF) had paid out R3.3-billion to companies that are in distress and have sought aid from the state. Labour Minister Thulas Nxesi said that about 20 000 people entitled to the UIF payout of 38% of an employee’s salary have not come forward to claim it.
He urged employers to assist workers with UIF applications. More than 100 000 companies have applied for relief.
Despite the negative effect of the measures taken to contain the virus on the economy, the government said it is determined to not abandon its growth initiatives and implement structural reforms.
The treasury’s director general, Dondo Mogajane, says the R500-billion stimulus package announced by President Cyril Ramaphosa earlier in April, as well as the phased lifting of the lockdown, are expected to help South Africa’s long-term need to prioritise South Africa’s growth outlook.
“As much as we are focusing on Covid-19, we need to give ourselves a pathway to grow the economy,” he said.
The economy was in recession before the coronavirus struck. It was junked by Moody’s while Fitch pushed it further down the junk measures.
In a statement last week, Moody’s said the government’s rescue package will weaken public finances and constrain the government’s ability to provide support to state-owned enterprises.
The ratings agency also warns that the enormous stimulus package could push the country’s deficit to nearly 14% in 2020.
Last week, Finance Minister Tito Mboweni said the complete fiscal and monetary response — which included the South African Reserve Bank cutting repo rates by 200 basis points and buying government bonds in the secondary market — amounted to more than R800-billion.
To fund its Covid-19 containment measures and cushion the economy, Mogajane said the government has devised a mixed approach of reprioritising the February budget and approaching global financial institutions such as the World Bank, the International Monetary Fund (IMF), the New Development Bank (previously called the Brics bank) and the African Development Bank.
He said that R130-billion will come from local funders; R100-billion will be sliced from the national budget by cutting spending on non-urgent items such as advertising and travel; and R30-billion will come from provincial budgets, which will probably cut their budgets according to that of the national budget.
The state is likely to borrow about $4.2-billion (R79.8-billion) from the IMF and $50-million (R990-million) from the World Bank as part of the Washington-based financiers’ emergency Covid-19 relief programmes.
Mogajane emphasised the government’s position that the country is approaching the financiers for healthcare-specific measures and not structural adjustment programmes, adding that the “cheap money” the country would receive from the two institutions is affordable. He said the interest on the loans is low at 1%.
“We are not going to the IMF because we have a balance of payments problem. All we have now is the funds that the IMF has made available to member countries to fight off Covid-19,” he said.
The New Development Bank has made $1-billion available for South Africa and discussions about the terms and conditions of the loan are being held between the country and the financial institution.
Monale Rastoma, the director general of the African Regional Chamber of the New Development Bank, says the board of governors is considering increasing the $1-billion available to South Africa and other Brics member states to $2-billion.
He said the initial phase of the funding from the New Development Bank would largely go towards the healthcare priorities of member states, and the second phase would go towards assisting countries with their economic measures to mitigate the economic effect of Covid-19.
There is a general expectation of a further contraction of the country’s gross domestic product over the coronavirus fallout, as well as uncertainty as to how long it will take to contain the virus and for how long the country’s economy will be negatively affected.
If things become dire and the effect of the coronavirus lasts longer than estimated, Mogajane says the treasury has not ruled out the possibility of introducing a solidarity tax where high net worth South Africans would be encouraged to contribute more to the country’s tax revenue, which is expected to decline sharply this year.
But he warned that introducing new taxes should be approached with caution. “We have to be very careful … we have to make sure that we deal with all the implications of what that means,” he said.
Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian