A basic income grant is an issue Finance Minister Tito Mboweni said has been following him throughout his life. But will it be considered as an option to mitigate the crippling impact of Covid-19 on households as the economy braces for a “deep recession”? Not just yet.
“Certainly, it is something that is on my mind. I think about it all the time. I read a lot about it, I study it, I analyse it – all the time,” Mboweni, who was speaking on a conference call responding to Treasury’s response to the pandemic on Tuesday, said of the basic income grant proposal. However, no decision has yet been taken to pursue this option, he added.
Mboweni said the issue was a serious question, which must be considered and not “dismissed offhand”. The idea of a basic income grant was promoted in an open letter to President Cyril Ramaphosa in March, by 76 economists, who proposed several interventions to buoy the economy in the face of the pandemic.
Treasury expects the economy to be hit hard this year, entering a deep recession and will present a set of economic-rescue proposals in a special Cabinet meeting on Wednesday.
Treasury will be reprioritising the national budget, in order to make sure the Department of Health has enough resources available to respond to the health crisis. “The Department of Health can’t be found wanting for cash,” Mboweni commented, this means less urgent projects will have to be placed on the backburner. The minister added that in the reprioritisation, it is important not to take away resources from growth-enhancing initiatives either.
Although Mboweni did not call it an “emergency budget”, he said Treasury would announce the changes to the budget once the “go-ahead” is given by Cabinet. He did not say when this might happen, but it can be expected soon. Mboweni however said that budget revisions were happening “almost everyday” as figures were a “moving target” at this stage.
Borrowing to fight Covid-19
During the call Mboweni also confirmed that Treasury was in talks with financial institutions such as the International Monetary Fund, the World Bank and New Development Bank in order to get the financial assistance to fight Covid-19. Mboweni stressed that this borrowed funding will be strictly used for Covid-19 responses.
“We are not looking for budget support, we will be looking for Covid-19 specific packages to access,” Mboweni said. According to Mboweni, Treasury is discussing a $60 million facility from the World Bank. “We are seeking to understand what kind of facilities they are giving us and what it means. We are leaving no stone unturned,” he added.
Treasury will make announcements on funding agreements once they are concluded.
Additional borrowing would see the country’s debt climb to an all-time high of 75% of GDP, economist Mike Schüssler said. “It’s a very big problem, it will hurt a lot of people. It’s not looking good for South Africa,” he commented. The fiscal deficit could grow from Treasury’s estimated 6.8% to a range of 12.2% and 12.5%, he said.
Investec chief economist Annabel Bishop similarly agreed the fiscal deficit will rise, with expectations it would exceed 10%, brought on by the sharp contraction of GDP and increased borrowing.
Earlier the Reserve Bank issued its latest projection for SA’s growth, it expects a contraction of 6.1%, compared to the 0.2% contraction it projected at the previous monetary policy committee meeting. The MPC moved up its May meeting to today, where it agreed to slash the repo rate by one percentage point to 4.25%. However, The Reserve Bank expects GDP to rebound to 2.2% in 2021 and grow by 2.7% in 2022, Mboweni pointed out.
The IMF’s latest world economic outlook shows that SA’s economy is expected to contract by 5.8% in 2020 and rebound with 4% growth in 2021. Global growth is expected to contract 3%, brought on by lockdowns implemented across countries in an effort to slow down the spread of Covid-19. The IMF has described the contraction as the “worst recession since the Great Depression,” and much worse than the Global Financial Crisis of 2008.