LUKANYO MNYANDA: It’s time to come clean on the R200bn lending stimulus that isn’t

For something that is supposedly central to the government’s efforts to support the economy in the wake of the crisis caused by the Covid-19 outbreak and the national lockdown, it got relatively little attention in the government’s latest blueprints.

In his medium-term budget policy statement (MTBPS) on October 28, finance minister Tito Mboweni didn’t give it more than one sentence. Unveiling his long-awaited economic recovery plan earlier in the month, President Cyril Ramaphosa mentioned it almost in passing. And the loan guarantee scheme is supposed to be the centrepiece of the government’s Covid relief plan.

It’s beginning to look like the only reason the government talks about a R200bn loan scheme is that it enables it to say SA has been among the most aggressive nations in moving to counter the Covid-19 economic shock. It’s a nice round number that enables the government to proclaim that it has provided stimulus equivalent to 10% of GDP. But that’s not remotely accurate, and won’t change despite promises to boost take-up.

And Mboweni’s speech on Wednesday made it clear why. In the midst of a fiscal crisis, the government simply doesn’t have the money. If there was a take-up of the full amount — meaning it was potentially facing a loss of up to R188bn — it would be something else for the finance minister to worry about.

In any case, the scheme was launched as a R100bn backstop, to support otherwise viable businesses that were facing ruin from the national lockdown. It was only if the initial number got used up that it would increase to the R200bn that’s being used as a headline number, giving the impression that this is an amount of money the state has handed over to banks.

For a number of reasons that have been spelt out elsewhere, most recently on Business Day by Intellidex chair Stuart Theobald, the take-up of the state-guaranteed loans has been rather poor. So far about R16bn has been extended, and the Banking Association SA (Basa) expects this will rise to just R24.4bn by January. If you are using R200bn as a starting point, that’s just 12%; it’s fair to say it’s been a failure.

Ramaphosa acknowledged as much, saying during the launch of his recovery plan that “this is far short of what is needed and what is possible”.  The government, he said, is “working with the banks” to ensure its “full potential” can be realised. Mboweni gave a similar message on Wednesday.

But they skirt around the big issue, one that makes it hard to see how it can possibly be made to work. As Theobald said to me, evidence elsewhere shows that schemes that have worked “have basically given the money away”. Governments need to have the ability and appetite for big losses.

The Financial Times reported in September that the UK government could lose up to £23bn (R482bn) in bad loans across its emergency loans to avert business failures. This will surely go up after Prime Minister Boris Johnson reluctantly imposed a month-long lockdown in England that will pile on more economic misery and require more support to keep firms from going under.

The UK does at least have the good fortune of record low interest rates, whereas the SA government is borrowing at rates that are on the upper end even for emerging markets. There is no money and the country’s small businesses aren’t as fortunate as SAA.

The government will be running a budget deficit of almost 16% in 2020/2021. If things go well, debt as a percentage of GDP will rise to 95% — and that’s before we factor in the state-guaranteed debt of state-owned enterprises (SOEs) — in the next five years, way more than the average 65% that the IMF expects for emerging markets by the end of 2021.

Commercial lenders have come in for a lot of criticism and some may have deserved it, but what can’t be got around is that the government, which would be on the hook for 94% of any losses, has rightly insisted that banks employ their normal risk controls to prevent what could be regarded as reckless lending. This is contrary to the impression that there’s a R200bn pot and it’s just the banks that are not handing it out.

What has agreed to so far has been to make R67bn available to nine lenders, about R16bn of which has been passed on to businesses, according to the latest figures from Basa, which also show that banks had also provided just more than twice that amount in their own credit-relief measures.

Basa MD Bongiwe Kunene attributes much of this confusion about the size of the guarantee scheme to the desire to use. A less diplomatic person, such as a newspaper editor, might describe it as misleading. She also noted that the relatively small amount of applications, about 45,000 firms having applied out of a small-company universe of more than 200,000, signalled that the issue was likely a lack of demand rather than the unavailability of money.

As the biggest funders of the government, having taken the slack after credit downgrades reduced foreign activity, it’s not in the banks’ interests either to lobby for a gung-ho approach that potentially plunges the government into a fiscal crisis that will surely then turn into a banking crisis as they sit with stock that’s rapidly losing value.

If Ramaphosa and Mboweni want to make the scheme more relevant, a necessary first step would be a bit more realism about what it is. And it's definitely not a R200bn stimulus.

That doesn’t mean it hasn’t played a positive and important role during an extremely difficult time for SA, and it might even be less demonised if this was made clear.