On Sunday evening finance minister Tito Mboweni and Reserve Bank governor Lesetja Kganyago held an extraordinary media conference. It was extraordinary, said Mboweni, because other than the presentation of the budget it is seldom that the media have the opportunity to talk to both the finance minister and the central bank governor at the same table, or in this case on the same phone line.
As nothing new was announced, it seemed the objective of the call was to impress upon us that the narrative that the government is doing nothing about the fiscal and monetary dimensions of the Covid-19 crisis is false. Yet with governments in the developed world saying they will pump $7-trillion into their economies and many stepping in to backstop corporates, the SA government response has seemed underdone.
Mboweni and Kganyago made the case that steps have been taken, they are cognisant of their role and responsibilities; there is not a lot more they need do right now; they will cross the next bridge when they come to it.
From Mboweni, the takeaway was that government interventions must be sequenced correctly — there is no point worrying about additional funding for the fiscus or further government actions until we reach the point where they are required. Right now, he said, this is a health problem and needs a health response. From where he stood, he saw no immediate funding problem to pay for this and believed he had a lot of scope to grab resources for health from other parts of the budget. If those ran out, he had the Covid-19 facilities established by the World Bank and IMF in his back pocket.
From Kganyago, the takeaway was that the SA banking system has built buffers to withstand stress. A stress event has now arrived and the Bank will use its monetary policy tools to ease the pressure. Just as it survived 2008/2009 intact, so will it this time. Intervening in the market to ensure it functions properly — through liquidity measures and bond buying — and lowering capital buffers are steps the bank feels confident will prevent the system from freezing up.
The steps so far are aimed at keeping businesses going through the lockdown, enabling them to temporarily shut rather than close their doors forever. The Treasury has provided tax relief. It has extended the youth wage subsidy (formally known as the employment tax incentive) to all employees who earn less than R6,500 a month. Employers can claim a tax refund of R500 a month per employee to subsidise wages. It has allowed employers to defer 20% of their tax payments for employees for four months.
The central bank has provided additional liquidity by lowering the liquidity coverage ratio, lowering provisioning for restructured loans and entering the secondary bond market to keep it functioning as investors dump bonds and flee to safe havens such as the dollar and US government securities. It has also lowered capital buffers, which will free up more money for lending.
The department of employment & labour has unblocked the use of the Unemployment Insurance Fund’s (UIF’s) surplus for employees who are temporarily laid off during the lockdown, or for those who have exhausted their paid sick leave.
But will these measures be enough to keep what New York University economist Nouriel Roubini has begun to call “the Greater Recession” at bay? The fiscal measures won’t make a dent on the hit production will take; the monetary policy measures are likely to be neutralised by the huge hit to profitability the banks will take.
While in Europe and the US the authorities are worrying about mortgage defaults and corporate loans, here in SA, as in the rest of Africa, we must worry about the scale of the humanitarian disaster that is unfolding. With half the population already living below the poverty line, eking out a survivalist existence, the lockdown for them means the difference between simply being poor and starvation.
The tighter the lockdown, the bigger the fiscal stimulus you will need to get your economy back up and running, wrote Harvard economist Ricardo Hausmann over the weekend. It is also true that the tighter your lockdown, the bigger your social welfare effort is going to have to be.
As time goes on, the government will have to do much more. The central bank and the Treasury will need to look at how the government can backstop companies in distress. The government will also need to provide large-scale food relief if starvation is to be prevented and social order maintained.
They will have to do more, and judging from Mboweni’s comments “on sequencing the response”, it is tacitly accepted that this is inevitable. But they have only a couple of weeks to get the new stepped-up intervention up and running.
• Paton is Business Day editor at large.
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