Growth uber alles, dammit: Mboweni promises structural reforms — again

Finance Minister Tito Mboweni and his colleagues in the government economic cluster are determined not to waste a good crisis.

The ministers will present a comprehensive package of economic reforms to Cabinet on Wednesday, which are designed in equal measure to provide support to an ailing economy and to kick-start growth once the lockdown is eased.

Among the measures will be expanded support for SMME lending through the banking system, a measure seen in other countries. 

It is also expected that Mboweni will announce a temporary increase to the child-support grant and/or the old-age grant. 

“We have to decide which grant we increase so that we increase support for the whole community. It is possible that more people will gravitate towards the old people for support,” he told the media on a conference call on Tuesday.

The measures will be supported by an economic recovery plan, much of which sounds like Mboweni’s now-familiar economic wish list.

It will include restructuring network industries (such as Transnet Freight Rail), liberating SMMEs to be the engines of growth and employment, and measures to lower the cost of doing business.

Fiscal reforms mooted could include the passing of the controversial Road Accident Benefit Scheme, the drawing down of existing surpluses (such as UIF) or increasing the contingent liability of government (guarantees), consolidation of public entities and the closure of SAA and SA Express, which wasn’t so much a decision as an inevitability.

“We have a detailed set of proposals from the economic cluster which we will put to Cabinet. Some are not new, some are already work in progress, and there may be a few new ideas there too,” Mboweni said.

Considering the fiscal framework has changed beyond recognition, National Treasury and the finance ministry will also adjust the Budget presented in February 2020 to redirect non-essential spending to the Department of Health and growth-enhancing sectors of the economy.

“South Africa’s revenue projections are down, economic growth is down, but spending pressures are there and they are real,” Mboweni says. 

The South African Reserve Bank now expects gross domestic product to contract by 6.2% this year — from 0.2% two weeks ago — and as a result, revenue will fall materially.

According to figures from NKC Research, the recently announced two-week extension of the South African lockdown is expected to cut overall consumer spending by $7.5-billion in 2020. When incorporating the five-week lockdown, NKC forecasts consumer spending at $186-billion this year, a 7.1% reduction from 2019.

National Treasury is optimistic that growth will pick up to 2.2% and 2.4% in 2021 and 2022.

In a report released this week entitled The Great Lockdown, the International Monetary Fund predicts that the global economy will shrink by 3.0% during 2020, the steepest downturn since the Great Depression of the 1930s. 

The future is not that bright either. The IMF sees a partial rebound in 2021, but chief economist Gita Gopinath notes that forecasts are marked by “extreme uncertainty” and that outcomes could be far worse, depending on the course of the pandemic.

Mboweni is aware 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 — a position that was precarious to start with, he says.

“Given the current crisis, a higher deficit may be accommodated if it is a) temporary and b) if reprioritised spending is directed towards the health crisis and direct financial support to the most vulnerable.” 

But, he adds, “it is absolutely critical, now more than ever, to focus on raising long-run growth. 

“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% and 2%. 

“Higher levels of economic growth need to become a non-negotiable objective. In the absence of urgent structural reforms, the considerable fiscal actions to mitigate the current crisis may leave the fiscus at the edge of a cliff.

“Going back to opportunities emerging from this crisis, we as government have reiterated our commitment to implement structural economic reforms to address the weak economic growth, constrained fiscus and ailing state-owned companies.” 

Meanwhile, National Treasury is currently exploring all avenues to fund government’s Covid-19 measures. 

They are not limited to local institutions.

“This morning we had discussions with the World Bank. We are also speaking to the New Development Bank, the International Monetary Fund and African Development Bank,” Mboweni said.

However, he was adamant that South Africa is looking for Covid-19 debt packages and not budget support.

“We do not want funding that is accompanied by structural adjustment programmes; we know what we have to do,” Mboweni said. 

He was also clear that at this point the government will not consider quantitative easing of the sort seen in Japan, the US and Europe.

“We need to take into account the steps already taken by our central bank as well by the private banks and insurance companies — that puts R600-billion into the economy, which is significant.”

In addition, the announcement that the SARB has lowered the repo rate by another 100 basis points (or 1%) to 4.25% should add further liquidity into the system.

“That said, we are watching the liquidity situation with a hawk’s eye,” Mboweni says. BM