Tito's fishes and loaves
Finance minister must deliver new budget, but he needs a miracle to find the money
Markets will keenly await the revised budget to see how severely the Covid-19 crisis has hit SA's fiscal metrics and where the money will be found for relief measures the government is putting in place.
Finance minister Tito Mboweni has promised the new budget "shortly".
In a televised briefing on Friday, Mboweni provided little further detail on the R500bn economic and social package that President Cyril Ramaphosa announced on Tuesday. But he did emphasise that the economy-wide monetary and fiscal measures SA has announced since the beginning of the crisis total R800bn.
This puts the response at about 16% of GDP, in line with that of many advanced countries, even though SA's public finances were already in crisis, and its economy already in recession, before the disaster.
We will be removing some bells and whistlesTito Mboweni, on cuts to the February budget
The government has yet to provide details on several of the measures, and economists have flagged the government's ability to implement some of them as one of the risks.
The government will directly fund only part of the response, an estimated R172bn, according to the Bureau for Economic Research (BER). The rest will come from other public and private sector sources. Ramaphosa made it clear that R130bn will be found from reprioritising within the government's current budget.
However, Mboweni's revised budget is expected to reveal a huge fiscal hole, with tax revenues crashing in a severely weakened economy and the budget deficit climbing well into the double-digit range. BER economist Hugo Pienaar this week put it at 14.4%, with some estimates even higher.
Market players will want to know how much more the government will need to borrow on the market, and where else it will turn to after Ramaphosa said this week that SA has approached international finance institutions, including the International Monetary Fund (IMF).
That could arouse the wrath of the ANC's alliance partners, but on Friday Mboweni accused critics of "making a mountain out of an anthill". He said SA is entitled to up to $4.2bn (R80bn) of the facilities the IMF has made available specifically for the Covid-19 crisis. This doesnot have the usual conditionality that the IMF requires from countries in need of budget support.
The Treasury is also in conversation with the World Bank on a "small" $55m-$60m loan and is entitled to $1bn from the New Development Bank (the Brics bank), Mboweni said.
Mboweni revealed that the new loan guarantee scheme, which will unlock as much as R200bn in finance from the banks to keep firms in business in the crisis, will be launched this week. On Friday the Treasury published some details of the scheme, which will help firms with turnovers up to R300m and is a partnership between the Reserve Bank, the banks and the government, backed by a government guarantee.
The Treasury also announced details of some new tax measures that are designed mainly to provide cash-flow relief for companies. These will allow them to delay paying taxes and levies, and fast-track refunds. It will also include an increase in the expanded employment tax incentive (from R500 to R750 a month) and a postponement of some of the corporate tax measures announced in February's budget.
Mboweni gave few details on which budgets might be cut to "reprioritise" the R130bn in government spending. He said anything that could be postponed would be, such as some capital expenditure. Budgets such as that for tourism could be "creamed off", given that there would be no tourism during the crisis. "We will be removing some bells and whistles," he said.
While the government is aware of the need for a short-run intervention, it has to keep an eye on the long run, Mboweni said, and SA needs to quickly implement structural reforms to get the economy moving again as it comes out of the crisis.
With the crisis expected to peak in September, internal documents show the government contemplates a six- to eight-month programme for restarting the economy in stages to try to contain the risk of transmission of the virus.
Ramaphosa announced on Thursday that SA has to avoid a rushed re-opening of the economy that could risk another hard lockdown. The country will follow a five-level approach, reducing from the current level 5 lockdown to level 4, which will allow some activity to resume subject to extreme precautions.
Extensive and detailed work on a risk-adjusted reopening of the economy has been done by economists and experts under the aegis of Business for SA, the umbrella business body working with the government on the Covid-19 response. The body has consulted intensively with the government.
Industries with low transmission risk, in critical sectors that can put strict health protocols in place, are set to be the first to re-open. Instead of the distinction between essential and non-essential goods and services, the new criteria will be more targeted, but these might be highly bureaucratic.
Business has called for regulations to be more consistent, avoiding the hard-to-explain contradictions and inequities that could create increasing anger as financial stress among households grows and unemployment climbs.
New survey results this week from Statistics SA found that almost half of businesses with turnovers of R2m or more have already cut working hours or laid off staff since the start of the crisis, or plan to do so soon.