Cabinet’s chaotic recovery plan little more than a wish list

After many consultations President Cyril Ramaphosa will present an economic recovery plan to parliament on Thursday, seven months after he declared a national state of disaster on March 15. But don’t hold your breath.

As has been the case for the past two years, whatever the president announces the National Treasury will cancel during the medium-term budget policy statement (MTBPS) later this month.

Whichever way one slices or spins the data, the government’s response to this once-in-a-century pandemic and economic crisis has not been a success. We had one of the world’s most stringent and longest lockdowns, and one of the most miserly economic responses — if one looks through the smoke and mirrors of the R500bn stimulus package, which has vanished six months after it was announced.

The economy will collapse by about 10% in 2020. But there is nothing to show in terms of public health outcomes, with about 700,000 infections, the 11th highest in the world, and almost 18,000 deaths, the 14th highest in the world. We have had the worst of both worlds.

Over the past week, the president has had ANC and cabinet lekgotlas to discuss the recovery plan. On Friday he chaired the Presidential Economic Advisory Council.

The cabinet’s 48-page plan for an infrastructure-led recovery is a shambles of a document which looks as if it was written by an intern. Almost nothing is costed, so the proposals are little more than a wish list.

There are three main issues the plan does not tackle.

First, in September 2018, soon after Stats SA said the country had entered a recession, Ramaphosa announced the establishment of a R400bn “blended finance” infrastructure fund to kick-start the economy.

Two years later the Treasury has made no allocation to the fund. The president must first tell us what happened to this fund and why it has taken so long to get off the ground.

Second, a public-sector investment strike has been the reason for the collapse of total investment over the past five years. Between 2015-2019, investment by general government and state-owned enterprises (SOEs) declined 17.6% and 26.8% respectively.

Since Ramaphosa became president in 2018, eight out of 10 quarters have shown declining investment, despite three summits where pledges worth hundreds of billions were made.

There can be no infrastructure-led recovery if the government does not explain how it will reverse this trend and repair the broken SOE balance sheets. The cabinet plan says nothing about the way it will reduce Eskom’s debt, though the president is sitting on numerous reports on proposals for this to be done.

Finally, it is impossible to have an infrastructure-led recovery within the context of never-ending austerity budgets that have cut allocations to public investment to fund the Covid-19 response.

There is no way out of this crisis without an injection of new money into the economy. As World Bank chief economist Carmen Reinhart said last week, additional borrowing is justified in present circumstances.

“While the disease is raging, what else can you do? First you worry about fighting the war, then you figure out how to pay for it.”

US economist Stephanie Kelton says in her new book, The Deficit Myth: “Rather than chasing after the misguided goal of a balanced budget we should be pursuing the promise of harnessing what MMT [modern monetary theory] calls our public money, or sovereign currency, to balance the economy.”

Ramaphosa must step out of his policy bubble, which is oblivious to other views, and consider numerous other proposals on how to get out of this crisis.

Duma Gqubule is founding director at the Centre for Economic Development and Transformation.