In her open letter to President Cyril Ramaphosa that broke the internet last week, social activist Ntsiki Mazwai correctly brought attention to the government’s lack of a plan to address the devastating economic impact of the lockdown, which requires us to shut down about two thirds of GDP over the next two to three months.
A Trade & Policy Strategies policy brief says: “When it was introduced, the lockdown was expected to affect around 80% of SA employees.” This will result in an unprecedented humanitarian catastrophe.
The economy will take a direct hit of up to R600bn in terms of lost GDP, and possibly up to R900bn if one takes into account the secondary impacts of the lockdown. Therefore, GDP growth is expected to drop by 5-10 percentage points during 2020. By comparison, GDP growth declined by 1.5 points in the wake of the global financial crisis. The economy lost 1-million jobs between December 2008 and March 2010. This time the collapse in GDP will be at least three times larger. SA could lose 3-million jobs.
But the government’s macroeconomic policy response to this calamity has been totally inadequate, with the finance minister missing in action and the National Treasury playing politics during an economic earthquake and making idiotic tweets about the need for structural reforms.
Treasury director-general Dondo Mogajane said he would use travel budgets to address the country’s biggest economic crisis yet. Ramaphosa launched a R2bn stokvel with his rich pals. Last week the Overseas Development Institute published a graph that showed the huge gap between SA’s Covid-19 stimulus package (monetary and fiscal policies) and those of other countries. The largest was the UK at 18.9% of GDP. The tiniest was SA’s at 0.1% of GDP. If you zoomed into the graph you could not see anything.
Last week Singapore and Malaysia doubled down on the Covid-19 stimulus packages they announced in their national budgets last month. Singapore, which has a debt to GDP ratio of 108%, tore up its February budget and announced a $33.7bn Covid-19 stimulus package in addition to the $4bn that was previously allocated. The $37.8bn package is equivalent to 11% of GDP. Malaysia, whose former prime minister, Najib Razak, is facing corruption charges, added $53bn to its earlier $4.8bn package. The $57.8bn package, which includes cash payments for the poor, is equivalent to about 16% of GDP.
Last month the National Treasury said SA had an estimated net debt to GDP ratio of 57%. There is no universe in which that is a high number. Under normal circumstances the debt to GDP ratio does not mean much. It is usually a symptom, and not the cause, of an economy that is growing slowly. During World War 2 the UK and US had budget deficits of more than 20% of GDP. Under the present crisis conditions our debt to GDP ratio is irrelevant. The government must be the caregiver of last resort. It must replace the lost GDP.
When there is an earthquake the priority is to care for the sick. The government must provide finance to plug the gap between available public and private health resources and what is required. It must mobilise private protective and medical equipment, health facilities and human resources and direct them to the people who need them. This may require the state to take over private health facilities and set up temporary facilities.
It must also provide income support and food aid to vulnerable groups, including laid-off workers, informal sector workers and the poor. The government must announce an emergency budget with a temporary stimulus that is worth at least R600bn or 12% of GDP. The Reserve Bank, which had reserves of R800bn at the end of November, should slash interest rates to zero and provide monetary financing.
• Gqubule is founding director at the Centre for Economic Development and Transformation
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