If one wanted to be generous, one could argue that the unprecedented nature of the Covid-19 outbreak means that government reactions by definition have to involve an element of trial and error.
When the history of this outbreak is written, no country’s leadership will emerge with a perfect pass record. China tried to suppress the seriousness of the outbreak, the UK experimented with a “herd immunity” strategy, seemingly so convinced of its own exceptionalism that it was unmoved by death on an unimaginable scale among its neighbours. And then there is the US and Donald Trump — from the disease being a hoax to treatments using malaria tablets and most outrageously, disinfectants.
So some of the confusing and apparently random rules here at home should be seen within that context, but only to a certain extent. Some things are clearly indefensible, such as the ban on e-commerce, while the imposition of a night curfew shows a security cluster that’s probably wishing it ruled during a different era.
It was a little bit alarming to see a minister, who has positioned himself as the face of the official response to the economic challenges posed by the pandemic, telling the country that the government hadn’t done calculations on the cost of its various lockdown measures
Headlines in the Sunday papers did not do much for confidence levels in our leaders.
In one story in the Sunday Times you hear from the deputy minister of finance, David Masondo, that the economy is in such deep state of crisis that the Reserve Bank should fund the government directly, something governor Lesetja Kganyago has rejected in the past.
In the same publication, the minister of trade & industry, Ebrahim Patel, is quoted as rubbishing the very concept of an economic crisis, which goes against any report you’ll get from someone who is running a business or standing in a queue waiting for a food parcel.
It was a little bit alarming to see a minister who has positioned himself as the face of the official response to the economic challenges posed by the pandemic, telling the country that the government hadn’t done calculations on the cost of its various lockdown measures.
That would explain much of the cavalier and dismissive attitude to critics. The answer is simply that the seemingly random policy choices, with potentially catastrophic consequences for businesses and workers, weren’t based on any rigorous research and forecasting. And there goes the concept of evidence-based policy-making.
And those economists who did produce estimates were merely sucking their thumbs, according to Patel. A really strange statement, coming just a few days after the country suffered yet another credit downgrade, this time from Standard & Poor’s, largely due to the anticipated economic hit from Covid-19.
As far as thumb-sucks go, S&P was among the more optimistic, estimating that the economy will “only” shrink 4.5% in 2020.
In terms of the Reserve Bank’s numbers, which don’t reflect the impact of the new phase of the lockdown that started on May 1, the economy will shrink 6.1%. Institutions such as the IMF and local banks have all released reports in the past few weeks painting a gloomy picture, with some seeing output falling by 10% or more.
Distracting debate
So I would err on the side of Masondo’s prognosis, which is more in line with what credible experts have been saying since Covid-19 made its way to SA.
What seems to be lacking from the National Treasury, which told parliament on Friday that anything between 2.5-million and 7-million people could join the masses of the unemployed this year, is a sense of urgency in playing its role. Another distracting debate about the role of the Reserve Bank isn’t what is needed at the moment.
The Treasury is generally not the fastest institution in updating its thinking when facts change. For most of 2019, it wasn’t the place to go if one wanted to get a sense of where the economy and government finances were going, with its rather optimistic growth forecasts staying unchanged until the release of the medium-term budget policy statement.
The same applies to this crisis, with information released in a piecemeal way, when the country and financial markets are crying out for a thorough review of how the coronavirus crisis has changed the country’s fortunes.
While there might be a new budget sometime in June or July, this is really too long to wait for citizens and business already enduring a sixth week of being locked down.
While Masondo’s comments in the Sunday Times that the “capacity of our government to raise revenue from tax and borrowing is highly limited” will come as no surprise to anyone, the government needs to come out with specific guidance on how how it plans to raise the extra cash.
According to the 2020 budget review, the government was looking at a deficit of about R370bn, or 6.8% of GDP. According to S&P, the deficit will now climb to 13.3%, implying a debt-to-GDP ratio of 84.7% by 2023, raising “questions around debt sustainability”.
What we know for sure is that it will seek to source R95bn from the IMF and other multilateral bodies. Even on that we are not clear on the timing and how far we are in the internal ANC consultation process. With analysts openly speculating about the government’s ability to fund itself, the Treasury cannot be silent for much longer.
The problem is not that finance minister Tito Mboweni hasn’t been briefed on these issues, having decided to share some of his thoughts with Goldman Sachs and its clients.
It would be better if he had that conversation with the country as whole. A speedy budget will ensure all of us — markets and citizens — get all the information at the same time.
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