If ever there was a case to be made for extraordinary steps to help the country’s economic turnaround, now is the time.
SA is not in a cyclical recession, some economists say, so a fiscal stimulus is not the appropriate remedy.
This is true: it is far worse than that.
We are emerging from an economic nightmare in which the key economic factors that need to be present for growth — confidence, fixed private investment and essential state-owned or regulated network infrastructure (electricity, water, rail, roads, broadband spectrum) — have been bludgeoned to the extent that the case to do business in SA has been virtually beaten out of existence.
These are structural problems or a mixture of structural and organisational and political problems that need government-initiated solutions. Rescue and reconstruction is essential.
However, all will take time to fix and in that time the economy will continue to contract and it is more likely that growth will stall.
That is why the news that President Cyril Ramaphosa is to push ahead with plans for a fiscal stimulus is the best news to come out of the Union Buildings since Jacob Zuma resigned.
Ramaphosa’s office on Monday said that it held urgent talks with business and labour leaders on Friday to "present the highlights of the stimulus package". The information will soon be shared with the public.
There has been confusing reporting about the stimulus package, which first surfaced in Ramaphosa’s late-night announcement at the end of July, following the ANC’s mid-year lekgotla.
The private sector also seems alarmed at the prospect of yet more government debt, judging from informal feedback from Friday’s meeting. The cheapest money would be from the IMF.
It was raised again — more forcefully this time — by the ANC’s economic transformation commission chair, Enoch Godongwana, two week’s ago in response to the poor GDP numbers.
Godongwana suggested using macroeconomic levers to aid the stimulus, a broad hint that the fiscal deficit should be expanded.
While Ramaphosa is now in a hurry to announce something — he wants the package on the table by the time the jobs summit happens on October 4 — it appears that the big questions are not yet settled. At the centre of the plan will be an infrastructure fund, with implementing capacity coming from the office of the president.
The idea of the fund is to leverage both private sector resources and private sector expertise in running the infrastructure projects.
What is not settled, however, is whether the package will be deficit neutral or not; and if not, where the money will come from.
The Treasury seems still to be clinging to the idea of fiscal consolidation. Some in the presidency — which also has an economic policy capacity in the form of the department of monitoring & evaluation — are arguing strongly for fiscal expansion.
According to the presidency, the budget is now so tightly squeezed that adequate resources cannot be found through shifting budget allocations around.
The private sector also seems alarmed at the prospect of yet more government debt, judging from informal feedback from Friday’s meeting.
The cheapest money would be from the IMF.
A second source of funds could be the bits and pieces that are being pledged by foreign governments like the Saudis and the Chinese. These, though, are more difficult to bed down around specific projects and ultimately would probably not be any cheaper than debt raised elsewhere.
The best source of funding would be commercial banks, as it would carry less reputational and political risk and would be rand denominated.
In addition, growth in private sector credit extension is an enabling condition for economic growth.
The Zuma era has been more deeply damaging to the economy than any previous exogenous shock and has left SA in a position far worse than when the great recession hit in 2008.
People — policymakers, business, the public — are fond of pointing out how well SA weathered the economic storm back then, slipping into recession only briefly in 2009 and then re-emerging with moderate growth.
What people sometimes forget is the role that fiscal policy played in that recovery.
While public finances were in a quite different state then — SA had a budget surplus and net debt was down to 23% of GDP — the 2009 budget was hugely expansionary, providing for 5.1%-a-year real increase in expenditure and tax relief equivalent to 0.5% of GDP.
A deficit of 4.2% of GDP in 2008-09 was anticipated — it turned out to be 6.6%.
A credible story for fiscal expansion could surely be put together.
• Paton is writer at large.
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