South Africa’s government unveiled a 500 billion rand ($26 billion) package to shore up an economy devastated by the fallout from the coronavirus pandemic and support those who’ve been worst affected.
“The coronavirus pandemic requires an economic response equal to the scale of the disruption it’s causing,” Ramaphosa said. “The scale of this emergency relief program is historic. It demonstrates that we will not spare any effort or any expense in our determination to support our people and protect them from harm.”
The support package is equal to about 10% of South Africa’s gross domestic product, and will add to government debt, which the Treasury said was already approaching unsustainable levels before the virus struck.
South Africa has been relatively spared the worst of the ravages of the pandemic — it’s had 3,465 infections and 58 fatalities so far. Still, a lockdown aimed at curbing the spread of the disease and preventing the health system from being overwhelmed is devastating the economy, with the central bank expecting it to contract 6.1% this year.
“Internationally, we’ve seen packages of between 10% and 20% of GDP, so this is not on the small side,” he said in an interview. “I don’t really think we can afford more. We are already stretching the budget to the furthest extent possible.”
Details of how funding will be redirected will be announced in an adjustment budget tabled by the finance minister, Ramaphosa said, without giving a date. The World Bank, International Monetary Fund, the New Development Bank and the African Development Bank are among the institutions that have been approached for additional funding options.
What Bloomberg’s Economist Says
“Despite the ostensibly large stimulus package announced, Treasury hasn’t injected as much new money into the economy. They have reshuffled expenditure and put out a massive loan-guarantee program. What you need is spending, not lending. Only 170 billion rand of the package represents new discretionary spending, making the size of the actual support package announced closer to 3% of GDP.”
–Boingotlo Gasealahwe, Africa economist
Companies with revenue of less than 300 million rand a year will initially be eligible for guaranteed loans, and 700,000 are expected to benefit. Several banks will be ready to offer the financing before month-end, Ramaphosa said.
“The risk sharing and funding arrangements between government and banks on these loans are specifically designed to ensure the stability of the financial system is maintained,” Nedbank Ltd. Chief Executive Officer Mike Brown said in an emailed response to questions.
The president also announced that companies with revenue of more than 100 million rand a year can apply to defer their tax payments.
The government initially imposed a 21-day lockdown on March 27, and later extended it by another two weeks. Enforced by the police and military, it only allows people to leave their homes to buy food, collect welfare grants and seek medical care — unless they provide essential services.
The support plan is positive, given the scale of the economic and social problems confronting South Africa, and should strengthen Ramaphosa politically if they have the desired effect, said Gina Schoeman, an economist at Citibank South Africa. Details on where the money will go and which budgets will be cut are needed “to figure out how sustainable a solution this is,” she said.