By: Sanisha Packirisamy, Economist at Momentum Investments.
1. What is to be expected from Tito Mboweni’s emergency / Covid-19 budget?
We are likely to see:
- A broad analysis of the expected impact of COVID-19 and the associated containment measures on the labour force, business environment, broader economy and the poor and vulnerable parts of society
- Growth revisions and more detail on the impact per sector as well as an updated impact on jobs
- An urgency to retrace previous sovereign rating downgrades
- A revised revenue shortfall
- Emphasis on the need for a social compact
- An update of the social transfers and unemployment insurance fund pay-outs granted in this period
- Potentially an update on the emergency financing available to SA from the International Monetary Fund (IMF)
2. In your view, what should be included in that budget?
We would like to see a more detailed analysis of phase 3 of government’s stimulus package which outlines how government aims to position the economy for structurally higher growth. We would like to see concrete plans and an update of implementation in the following areas:
- Digital migration and the release of spectrum
- Competition at ports and measures to reduce excess pricing at ports
- Measures to boost tourism including destination marketing and tourism safety police
- Progress in travel and work visas
- Public-private partnerships in key areas of the economy, for example, agriculture
- An update of the African Continental Free Trade Agreement to grow our export sector
- A reduction in red tape and more favourable financing conditions for small and medium enterprises which are a large generator of jobs in our country
- Concrete steps to overhaul state-owned enterprises
3. What cues can Mboweni take from other countries?
Reversing the negative consequences of the virus requires substantial fiscal and monetary resources. Richer nations have been able to afford large-scale stimulus packages, however resource constraints have limited the size of support packages unveiled by many emerging economies. It is important for poorer nations to not replicate the stimulus behaviour enacted by richer nations in a copy-and-paste approach. Rather, emerging countries should identify key areas of concern and use a targeted policy response to enhance the effectiveness of their spend, within the constraints of their available policy options.
In SA’s case, the most dire need arising in the early days of the COVID-19 pandemic was to give cash to the hungry and to provide support for small and medium-sized enterprises to limit the extent of inevitable job shedding that is likely to follow. Automatic stabilisers including progressive taxation and unemployment benefits is also designed to stabilise incomes and consumption trends.
An unprecedented 102 countries have applied for emergency financing from the IMF. These funds come with low conditionality and a reduced interest rate and provide nations with some breathing room in the current COVID-19 crisis. It is not a fully-fledged facility requiring a reform programme to be in place. SA could receive up to US$4.2 billion in emergency funding from the Rapid Financing Instrument (RFI) and in our opinion, should be accessed.
SA has followed the action guidelines stipulated by the IMF to combatting COVID-19, including (1) protecting lives (phase 1 of our economic plan), (2) protecting livelihoods (phase 2 and 3 of our economic plan) and (3) preparing for recovery (phase 3 of our economic plan). In achieving phase 2 of our economic plan, we may need to see lockdown restrictions applied on a more granular geographic basis so as to isolate cluster cases of COVID-19 while allowing the rest of the economy to operate. More detail needs to be seen on phase 3, which will involve dealing with elevated debt levels, an escalation in bankruptcies and a rise in unemployment and inequality. Job protection (through embarking on measures such as reduced working hours or pay cuts), the preservation of business and trade networks and payment holidays on expenses such as rent, interest on loans and insurance could allow for a smoother recovery.
4. Did Minister Mboweni / National Treasury take too long to present the emergency budget?
There is a trade-off between delivering a more coherent policy plan of action and reducing uncertainty in the shorter-term. Given the extent of negotiations needing to take place to navigate through this crisis and embark on a measured and careful re-opening of the economy, the time delay is understandable.
5. What can we expect for the Medium Term Budget Policy Statement (MTBPS) in October?
A more detailed analysis of government’s finances. By then we would also have had more data giving us a clearer picture of the economic damage wreaked by COVID-19.
6. General comment on Government’s fiscal position:
In the absence of meaningful growth, government’s fiscal position remains precarious. In order to avoid a debt trap, some difficult decisions have to be taken which may not be politically popular. In the absence of any external funding, the reduction in SA’s fiscal deficit between 2020 and 2021 will be marginal, setting us apart from our emerging market peers and weighing negatively on our sovereign rating. SA’s climbing interest bill also crowds out more useful forms of expenditure, which could affect service delivery in the long run.