Tito Mboweni’s Covid-19 briefing thin on funding detail
The briefing was eagerly awaited by the public and the market since President Cyril Ramaphosa’s announcement of the package on Tuesday
Finance minister Tito Mboweni provided no new details on how the government plans to fund the R500bn economic and social support package aimed at mitigating the damage of the Covid-19 crisis, when he briefed journalists on Friday.
The briefing was eagerly awaited by the public and by the market since the announcement of the package on Tuesday by President Cyril Ramaphosa. In particular, there is much interest on the extent to which SA will draw on funding from international finance institutions and whether government intends to increase its bond issuance over 2020.
Before the crisis, SA’s public finances were already in difficulty with a forecast of low growth and a fast-escalating debt-to-GDP trajectory that showed no sign of stabilising.
Mboweni referred to previously mentioned funding options but did not put any definite numbers of the table.
The government has already confirmed that it will take a $1bn loan from the New Development Bank, a sum to which all member states are automatically entitled, to address the Covid-19 crisis.
SA was also looking to raise $55m to $60m from the World Bank for Covid-19 related programmes and was entitled to apply for $4,2bn from the International Monetary Fund’s (IMF’s) Rapid Financing Instrument.
Mboweni declined to answer on whether the Treasury would increase bond issuance as this was “a technical matter” decided by officials on a week-by-week basis, he said.
Mboweni also made the point that the government did not intend to mobilise the full R500bn support package by raising new money.
First, R160bn of the Covid-19 response would come from reprioritised spending within the budget. Activities such as tourism would not require the full budget they were allocated in February.
Second, the R200bn credit loan guarantee scheme is money that will circulate through the economic system due to bank lending, and the government would take on only the profits and losses the scheme might make.
Third, some of the stimulatory measures would be the result of tax relief. Steps taken by banks and insurance companies to provide clients with payment holidays were also important.
“Not all of this is going to come from the fiscus but it is in the economic system. We need to think beyond the role of the state alone. This is the state in working with the private banks and economic system as a whole,” he said.
Mboweni confronted the political fears of the IMF that the ANC and its allies have harboured in the past, saying that those who characterised the IMF or the World Bank as “horrible people in Washington who carry stones to break people’s bones if they don't pay back” were “making a mountain out of an anthill”.
“SA is a member of IMF and World Bank and therefore we are entitled to approach those institutions. The critical thing about the IMF facility is that it is specific to this crisis, it is not the usual budget support or policy intervention and conditionalities. As the president said we need to understand we are in a war-like situation and all people need to go to the front to deal with the situation,” he said.