/ 28 July 2021

Mboweni extends R38bn to cope with double calamity of Covid-19 and unrest

Tito Mbowen
In 2020, former finance minister Tito Mboweni Tito Mboweni announced his plan to reduce the public sector wage bill in an effort to squeeze some of the air out of the country’s ballooning debt and fiscal deficit. (Delwyn Verasamy/M&G)

For the second time in a year, Finance Minister Tito Mboweni has unveiled an economic relief package to help households and businesses weather the effects of Covid-19. This time the relief totals nearly R39-billion and it makes allowance not only for the pandemic, but also the recent politically orchestrated violence in KwaZulu-Natal and Gauteng.

About a 10th of the R38.8-billion will go to state-owned insurer Sasria to shore up its balance sheet to cope with claims from businesses that suffered losses in the looting. But beyond that, Mboweni said, the state would give full backing to the insurer should it exceed its capacity.

“Crucially, [the] government has decided to provide full financial backing to Sasria should it exceed its solvency limits. The treasury is putting in place the necessary arrangements to ensure that this commitment is met should it be needed,” he said.

Mboweni stressed in his hour-long briefing that small and medium-sized businesses (SMMEs) were the lifeblood of the economy. These have been hit by a double calamity, with the looting estimated to have resulted in claims of up to R30-billion. The treasury is now effectively extending a commitment to underwrite the uninsured to the tune of R2.3-billion.

“Qualifying uninsured businesses will be supported by the state, partly through a reprioritisation of the existing support mechanisms for SMMEs,” he said.

The government is also engaging with relevant stakeholders, including the National Economic Development and Labour Council, banks, insurance companies and community organisations to deal with the challenges facing uninsured businesses, the finance minister added.

But the state is also heeding calls to extend its R350 social relief of distress grant, and will do so until March 2022 at a cost of R26.7-billion; and is setting aside R5.3-billion to bolster the Unemployment Insurance Fund (UIF) as the country emerges from a month of level-four lockdown to stem the third wave of the pandemic.

“This will mainly cover those who have lost their jobs due to the lockdowns [through the temporary employer-employee relief scheme (Ters)]. With regards to the people who lost their jobs due to the recent unrest, the UIF will provide income support, using different instruments that it has at its disposal to deal with such eventualities,” Mboweni said.

The package can be accommodated without increasing the state’s debt levels “especially borrowings from the market”, he added, telling the briefing:  “As such, our fiscal strategy remains on track. The implementation of these relief measures will not result in a change in the debt trajectory and the fiscal deficit will not exceed the level presented in the February budget.”

A year ago, Mboweni warned that South Africa was staring a sovereign debt crisis in the face. On Wednesday, he cautioned again: “I do wish to reiterate that our fiscal system remains at risk”, but added that tough times required tough measures.

In February, the treasury forecast that the budget deficit should narrow from a record 14% of GDP in 2020-21 to 6.3% in 2023-24, and undertook to stabilise its debt at 88.9% of GDP within four years.

On Wednesday, Mboweni made clear that the country had no ideological scruples against turning to the World Bank and the International Monetary Fund at “reasonably low market rates” to fund the relief it needed.

“We are in conversation with the World Bank. I think we have crossed that Rubicon, we are now ad idem [at a meeting of the minds] that we can borrow from the International Monetary Fund and the World Bank,” he said.

Mboweni stressed that Covid-19 vaccine roll-out was crucial for the country and funding it an imperative for the treasury.