New ‘phase 2’ coronavirus measures for South Africa – here’s what to expect
Treasury is currently working on ‘phase 2’ of economic interventions to help South Africa weather the coronavirus lockdown, and the impact of the prolonged closure, says finance minister Tito Mboweni.
In an address on Tuesday (14 April), Mboweni said that this will include a revision of the country’s fiscal framework to take into account the effect of Covid-19 on the fiscus.
He added that there are a number of elements in the fiscal response, including:
- Putting forward clear estimates of the additional health care costs that will be needed;
- Reprioritising unnecessary expenditure towards these health care costs;
- Assessing the impact of slowdown on projections for revenue;
- The response should be costed as much as possible – or how much is needed;
- The response should be temporary – with a clear timeline of one year;
- The response plan must be crafted as a third line of defence for the vulnerable;
- Providing a clear timetable or plan to stabilise debt over the current forecast period;
- The response plan must be supported by an economic recovery plan (structural reforms) and a set of reforms within the fiscal system e.g. passing the RABS (road accident benefit scheme), consolidation of public entities and closure of SAA and SAX (SA Express).
“Together with my colleagues in the economic cluster, have put together a few proposals on how we can further grow the economy,” Mboweni said.
“These will announced shortly. Amongst the measures we are looking is expanded support for SMME lending through the banking system, similar to other countries.”
Mboweni added that government is exploring all funding avenues to finance all Covid-19 related programmes and measures aimed at addressing the pandemic.
“The funding avenues will not be limited locally, but will include exploring all global partners and international finance institutions. Funding transactions will be announced officially once concluded,” he said.
Long-term focus
Mboweni said that the Covid-19 pandemic and measures taken to address its spread have had a substantial negative impact on economic growth and government’s fiscal position.
“The pre-existing fiscal position was precarious, and we must ensure that whatever we do does not harm our long-run fiscal sustainability. The fiscus’ ability to respond to crisis is weak,” he said.
He added that a higher deficit may be accommodated if it is temporary and if reprioritised spending is directed towards crisis (health) response, and direct fiscal support to the most vulnerable.
The other parts of the package involve the drawing down of existing surpluses (e.g. UIF) or increasing the contingent liability of government (guarantees).
“But it is absolutely critical, now more than ever, to focus on raising long-run growth,” he said.
“Beyond the Covid crisis, a major risk facing the economy and the fiscus is if long-run economic growth returns to the pre-crisis averages of between 1-2%.”
Higher levels of economic growth need to become a non-negotiable objective, Mboweni said.
“In the absence of urgent structural reforms, the considerable fiscal actions to mitigate the current crisis may leave the fiscus on the edge of a cliff.
“For example, we must, without any hesitation, act to implement the President’s announcements on electricity, and rapidly work to implement the range of reforms that we had already planned.”
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