[ad_1]
A basic income grant is a problem that Finance Minister Tito Mboweni said has been following him all his life. But will it be considered as an option to mitigate the crippling impact of Covid-19 on households as the economy prepares for a “deep recession”? Not yet.
“It is certainly something I have in mind. I think about it all the time. I read about it a lot, I study it, I analyze it all the time,” said Mboweni, who was speaking on a conference call in response. to the Treasury’s response to the pandemic on Tuesday, he said of the basic proposal for an income subsidy. However, the decision to pursue this option has not yet been made, he added.
Mboweni said the issue was a serious question, one that should be considered and not “dropped out of the blue.” The idea of a basic income subsidy was promoted in an open letter to President Cyril Ramaphosa in March by 76 economists, who proposed various interventions to boost 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 at a special cabinet meeting on Wednesday.
The Treasury will again prioritize the national budget, to ensure that the Health Department has sufficient resources available to respond to the health crisis. “You can’t find the Health Department wanting cash,” Mboweni said, this means that less urgent projects will have to be in the background. The minister added that in reprioritization, it is important not to take resources away from initiatives that improve growth either.
Although Mboweni did not call it an “emergency budget,” he said the Treasury would announce the budget changes once the Cabinet gives the “go-ahead.” He didn’t say when this could happen, but it can be expected soon. However, Mboweni said budget revisions were taking place “almost every day” as the figures were a “moving target” at this stage.
Loan to fight Covid-19
During the call, Mboweni also confirmed that the Treasury was in talks with financial institutions such as the International Monetary Fund, the World Bank, and the New Development Bank to obtain financial assistance to fight Covid-19. Mboweni emphasized that this borrowed funding will be used strictly for Covid-19 responses.
“We are not looking for budget support, we will look for specific Covid-19 packages to access,” said Mboweni. According to Mboweni, the Treasury is discussing a $ 60 million World Bank facility. “We are trying to understand what kind of facilities they are giving us and what it means. We are not leaving stone unturned,” he added.
The Treasury will make announcements about the financing agreements once they are concluded.
The additional debt would see the country’s debt rise to a record high of 75% of GDP, said economist Mike Schüssler. “It is a very big problem, it will hurt a lot of people. It does not look good for South Africa,” he said. The fiscal deficit could grow from an estimated 6.8% of the Treasury to a range of 12.2% to 12.5%, he said.
Investec chief economist Annabel Bishop similarly agreed that the fiscal deficit will increase, with expectations that it will exceed 10%, caused by the sharp contraction in GDP and the increase in loans.
Previously, the Reserve Bank issued its latest forecast for SA growth, expecting a 6.1% contraction, compared to the 0.2% contraction it projected at the previous meeting of the monetary policy committee. The MPC brought its May meeting forward to today, where it agreed to reduce 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 2.7% in 2022, Mboweni said.
The IMF’s latest global economic outlook shows that the SA economy is expected to contract 5.8% in 2020 and recover with 4% growth in 2021. World growth is expected to contract 3%, triggered by blockades implemented in all 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 2008 global financial crisis.
