Russian Nobel laureate Aleksandr Solzhenitsyn reportedly once said of his country’s rulers: “We know they are lying. They know they are lying. They know we know they are lying. We know they know we know they are lying, but still they are lying.”
The same could be said about SA’s rulers. Over the past few months President Cyril Ramaphosa has repeatedly said the government has implemented a R500bn stimulus package, when he knows the statement is not true. There is not a single economist on the left or right who believes the government has implemented a R500bn stimulus package. But the government continues to lie. And sections of the media repeat this lie.
On April 21, Ramaphosa announced the so-called R500bn stimulus package, which was equivalent to 10% of SA’s GDP in 2019. The package had two components. There was below-the line (off-budget) spending of R240bn. This comprised a R200bn loan guarantee fund and R40bn that the Unemployment Insurance Fund (UIF) would spend on people who had been temporarily unemployed. There was also above-the-line (on-budget) spending of R260bn.
This included tax measures of R70bn. The implication was that there would be spending of R190bn through the fiscus. The spending included R100bn for job creation and support for small and medium enterprises (SMEs). There would be reprioritisation of existing spending worth R130bn to finance of the response. Because a stimulus refers to new money that is injected into the economy, reprioritised spending should not count. Based on the limited information in the president’s announcement the intended stimulus was R370bn.
Ten months later, the stimulus has been much smaller — less than a third of the intended amount. By January 16 banks had lent R17.8bn under the guarantee scheme. Recently, a Treasury official told the National Economic Development and Labour Council that trying to revive the scheme was like flogging a dead horse. One would think this would be enough evidence for the government to stop using the R500bn figure. But it will continue to lie. Because it is clear that the banks used a state guarantee to shift loans to prime clients who would have received them without the guarantee, I do not count them as part of the stimulus.
The UIF has paid R56.8bn to 12-million workers. The government response was R58bn — a R36bn increase in non-interest spending and tax relief of R22bn. The allocation towards job creation (R12.6bn) and SME support (R6.1bn) totalled R18.7bn. The government now says the R100bn for job creation will be spent over three years. There will be no such allocation in the budget on February 24. Therefore, the total stimulus was R114.8bn — 23% of the R500bn figure. This was equivalent to just 2.3% of GDP.
Because the mantra of global stimulus packages is that they should be equal to the expected shock to the economy — an 8% decline in GDP during 2020 — the SA response to this once-in-a-century pandemic and recession was totally inadequate. By comparison, according to the IMF countries announced stimulus packages totalling $14-trillion during 2020, equivalent to 16% of world GDP in 2019. The direct government responses were $7.8-trillion or 8.9% of world GDP, compared with the SA state response of 1.1%.
In its January 2021 world economy updates the IMF says countries should maintain fiscal support, which is essential for households, firms and the recovery. “If policy support is withdrawn before the recovery takes firm root, bankruptcies of viable but illiquid firms could mount, leading to further employment and income losses.”
In SA the budget must shelve plans to implement R310bn of austerity measures over the next three years. It must extend social grants and provide other forms of support to the most vulnerable households and firms.
• Gqubule is founding director at the Centre for Economic Development and Transformation.
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