Economists cautiously optimistic over fiscal recovery plan

With an economist referring to President Cyril Ramaphosa’s announcement of a R500 billion socioeconomic stimulus as “a fiscal bazooka”, there has been positive, but cautious reaction from analysts to South Africa’s three-phase recovery plan during the Covid-19 global crisis.

In a big-bang announcement since the outbreak of the coronavirus in the country, Ramaphosa this week unveiled a plan for socioeconomic recovery, with the first phase – the declaration of a national state of disaster – which he said included “a broad range of measures to mitigate the worst effects of the pandemic on businesses, communities and individuals”.

Ramaphosa is on Thursday expected to announce the reopening of industries earlier deemed nonessential. These include steel, construction, hospitality and catering.

Describing Ramaphosa’s announcement as “a fiscal bazooka”, Intellidex head of capital markets Peter Attard Montalto said the plan was “long overdue”.

But he cautioned: “While this is clearly a bazooka, there are questions over how implementable large parts of it are. A fiscal rule is needed urgently, given many issues like new unemployment support risk becoming permanent.

“History has shown that nominal GDP (gross domestic product) growth does not come to the rescue, nor do structural reforms.

“Thinking on the growth impact, the package will mainly see the R200 billion going into working capital – not investment capital, which is less growth positive – whilst the reprioritisation lowers growth.

“A new unemployment benefit for those not getting UIF (Unemployment Insurance Fund) or other grants, will be R350 per month for six months. This will be on top of the R50 billion for other grants, which themselves will cost R50 billion.

“Pricing this is impossible – it could be R10.5 billion if five million people apply. This will be hugely challenging to administer.

“This could take months to set up, starting the distribution and collecting applicants. As such, we see strong upside risks in cost and time, putting this in place.”

South Africa, he said, has already applied for an International Monetary Fund (IMF) rapid financing instrument (RFI) at $4.2 billion (R79.9 billion).

“An RFI will be logistically challenging for SA to present a credible framework to the IMF staff.

“There will also be serious questions from the executive board around what the structural adjustment is and why SA doesn’t need the loan tied down with conditionality.

“Given the timing of the emergency budget, an RFI could be awarded in two months, but there is a risk of delays.”

Another leading economist, Mike Schussler, said: “Great news, but how we finance and pay for it was not announced and, therefore, South Africa only knows half the story.

“But we knew we would need a fiscal stimulus. News of the IMF assisting with loans is also great as interest rates would be far lower than SA would get in an open market.

“This also brings inflow of dollars to help pay for imports, other foreign debts and to finance SA’s situation.

“In terms of conditions, SA may be required to stop putting money in loss-making [state-owned enterprises] and cancel [black economic empowerment] and elitist requirements for investment coming in.”

– brians@citizen.co.za

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