Cyril’s rescue plan: will it work, is it enough?

Twenty-five days into a lockdown which could slash SA’s gross domestic product by as much as 10% or more, President Cyril Ramaphosa has at last announced a package of socio-economic relief measures worth R500bn – or 10% of GDP.

It was not before time. The president’s tardiness in addressing the unfolding Covid-19 economic disaster had threatened to erode all the credibility he gained with his swift, bold response to the Covid-19 health disaster. And the lack of any meaningful action on the part of government threatened to steepen the economy’s decline and deepen the resulting poverty and job loss.

Behind the R500bn package announced on Tuesday evening are some crucial and difficult decisions that government has now clearly made. The package includes some substantial and innovative interventions that will make a real difference, helping companies and households to survive the next few months.

But a careful look at the details reveals that the package is not really R500bn of new money from government to tackle the crisis. And at least some of it depends on whether dysfunctional departments – such as the department of social development or the Unemployment Insurance Fund – can implement the measures and ensure money gets to those who most need it.

That’s not to underrate the importance of the package – and indeed of the partnerships, with international funders such as the International Monetary Fund as well as with domestic private sector players such as the Solidarity Fund and the banks. That Ramaphosa has managed to get his colleagues on board to ask the IMF – controversially – for money is significant, even if the IMF facilities SA might ask for are not the kind that necessarily come with strings attached.

Government is already in trouble with its existing debt burden and the ever steeper cost of borrowing money on the market; it cannot afford the kind of stimulus that many other countries have put in place, certainly not without access to outside help.

Ramaphosa confirmed that government has approached multilateral lenders such as the IMF, World Bank and New Development Bank. He indicated too that only about R130bn of the R500bn will come from government’s budget, from re-allocating funds within the existing budget rather than from new money.

The rest will have to come from outside government – from the UIF and the private sector, particularly the banks, as well as international financial institutions and other global partners.  Finance minister Tito Mboweni will table an adjustment budget, Ramaphosa told us, without naming a date, but it seems SA is not about to bust the budget or start printing money right now.

Most important and immediate of the relief measures is the R50bn that’s been added to social grants, particularly the child support grant, for the next six months. Using the existing grants system is the best, fastest and most reliable way to reach the poorest households so that piece is crucial.

A new piece is a special Covid-19 grant of R350 a month for those the grants system and the UIF don’t reach – so not the broad-brush basic income grant some have called for but something more targeted at unemployed youngsters and the informal sector, though it will rely on the department of social development’s ability to implement.

In addition are R20bn for health interventions and R20bn to ensure struggling municipalities can deliver services – and R100bn to “protect and create jobs”. What’s in that R100bn is not entirely clear, though it includes the R40bn UIF scheme which was already in place but has been extremely slow to start delivering benefits to workers. 

If providing support for workers and households is crucial to save livelihoods and prevent poverty and desperation, providing support for companies to stay alive is as crucial to ensure jobs and economic capacity will survive. Though banks have made it clear they will do what they can to assist customers in good standing through the crisis, and the Reserve Bank has tweaked the regulations to enable them to do so, there are limits to how much risk they can take without endangering their own stability and that of the system.

That’s where the R200bn loan guarantee scheme which Ramaphosa announced comes in: bankers and experts had made detailed proposals on such a scheme, which could be backed by a government guarantee and/or by the Reserve Bank and funding from international institutions and partners – the details have yet to be announced.

The last piece of the package is R70bn in “cash flow relief” for companies. Tax measures to allow companies to defer payments to the SA Revenue Service had already been announced and this adds to them. It will help to ease companies whose income has dried up through the crisis – though they will have to pay up eventually.

Ramaphosa also threw the Reserve Bank’s latest interest rate cut into his package, saying it would inject an estimated R80bn into the economy. Altogether that takes the package to over R500bn, but we have still to see how much of it will happen and when, with many details still to come.

Still to come too is the answer to the big question: when and how the economy will be restarted.  Ramaphosa dodged that question, deferring it to Thursday, when he promises to address the nation. He has emphasised that it will be a phased and risk-adjusted re-opening of the economy beyond the lockdown.

The longer it takes, the more severely the economy will be damaged. Tuesday night’s package will help to mitigate it somewhat, but it will take a lot more to restore the health of SA’s ailing economy. 

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