Cabinet ‘hard at work’ planning for post-Covid economic recovery
The cabinet is working hard on a post-Covid-19 economic recovery plan with a particular emphasis on structural reforms aimed at reducing the cost of doing business to attract investment and domestic capital formation, says deputy finance minister David Masondo.
The government’s ability to spend to stimulate economic growth was constrained, he said on Wednesday, given that a revenue shortfall of nearly R300bn was forecast for the 2020/2021 fiscal year due to the stagnation of the economy because of the lockdown. The SA Revenue Service has projected a revenue shortfall of R285bn.
Masondo said any money raised should be directed towards boosting economic growth through investment in infrastructure.
“If we don’t do something decisive it is going to be greater than the Great Depression of the 1930s,” Masondo told members of parliament’s two appropriation committees, which were briefed by the Treasury on the Appropriations Bill, based on the February 2020 budget.
“It is already apparent that the economy has taken a huge knock as a consequence of the Covid-19 shock. The IMF is already projecting that the global economy is going to decline by 3% … and our economy by 6%.”
The deficit would rise and the government’s ability to borrow has already been negatively affected by the credit ratings downgrades.
“So we are in a serious fiscal situation and unemployment is going to increase,” Masondo said.
Finance minister Tito Mboweni is due to table a special appropriations bill in parliament towards the end of June that will set out the government’s revised spending plans and forecasts taking into account the unforeseen expenditure on Covid-19 and the effect of the pandemic on the economy.
Masondo said the cabinet was focusing on how to accelerate structural reforms. Reducing the cost of doing business was critical to attract investment and key to this would be lowering the cost of rail. It was not acceptable, Masondo said, that road transportation of goods was cheaper than rail, and this was the responsibility of Transnet, the state-owned rail freight and logistics parastatal.
The government had to lay down a conducive environment to engender the business confidence required for investment. This also meant tackling the provision of electricity.
The social compacts that had underpinned the government’s response to Covid-19 pandemic would have to be taken further and be used for an economic recovery plan, Masondo said.
Regarding the use of pension funds to invest in Eskom, Masondo said it was the prerogative of the Public Investment Corporation board to decide on the allocation of assets according to the mandate of its clients, namely the Government Employees Pension Fund and the Unemployment Insurance Fund.
“As a ministry and as a department we don’t get involved in how those assets get allocated,” the deputy minister said.
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