Publications
Partners
We are headed for a recession for a longer period unless we take drastic measures to, on the one hand, deal with the pandemic, while, on the other, trying to prevent the economy from collapse, writes Mbhazima Shilowa.
There is a Xitsonga saying: "A yi ni yo halaka".
Loosely translated it means that it does not rain, but it pours.
This must be the feeling of those in government especially the Presidency and the Treasury.
In the middle of the coronavirus lockdown, Moody’s the only ratings agency that had not downgraded us to junk status when Fitch, Standard & Poor's did so a few years back, followed suit.
Since no entity can have a rating higher than the country, it follows that a number of state and private entities, notably Acsa and the financial institutions, will also be downgraded.
How does one respond to the downgrade in the midst of a lockdown occasioned by the need to slow down the impact of the coronavirus?
A number of orthodox economists think more bitter medicine need to be administered even if it worsens the patient's condition.
It is in the patient's best interest, they say.
They stand ready - were the situation to worsen - to proclaim the procedure a success even if the patient were to die.
They may even add that the patient would have pulled through had the acrid dosage been taken earlier without fail.
This, despite the fact that they will not be able to point to a single country that have responded to the impact of the coronavirus by implementing orthodox fiscal and monetary policies.
On the contrary, governments in capitalist countries have thrown caution to the wind, increased their budget deficits and through their central banks, made money available at affordable rates to banks and the state.
They have also made money available to assist struggling businesses and workers who have been hardest hit by the lockdowns which are now a worldwide phenomenon.
Economy needs more than a budget cut
While the SA Reserve Bank has taken steps to assist the banks through what is known as quantitative easing, Treasury and the Minister seem to be looking more at how to further trim the budget not just because of the coronavirus but as a response to the downgrade.
Newspapers have reported the Minister of Finance as saying that "the downgrade of our sovereign debt rating to junk by Moody's has given renewed impetus to the drive to structurally reform the country's economy".
Asked whether structural reform was even feasible in the current strained financial environment, Mboweni is reported to have said that he would be creating a new unit within the Ministry of Finance to work on reform called the Vul’indlela unit.
"It will comprise a few people who will look throughout the government system about where we are on structural reforms."
How he intends to succeed when the country had already failed when we were not facing the disaster brought about by the coronavirus is beyond me.
He seems unaware that whereas we were in what some called a technical recession, we are headed for a recession for a longer period unless we take drastic measures to, on the one hand, deal with the pandemic, while, on the other, trying to prevent the economy from collapse.
Already economists across the world are predicting a global recession.
The Financial Times reported recently that four former IMF chief economists have said that "the world economy has fallen into recession, suffering from a 'wicked cocktail' of coronavirus and the dramatic action to limit its spread".
They agreed that "addressing the public health needs was the first priority", but said that "with a sharp downturn likely, governments should be preparing to spend significant sums to protect businesses and households".
Even the IMF, not known for its progressive views, are singing a somewhat different tune even if it is somewhat muted.
CNBC reported that the IMF said governments should approach the pandemic as if it was a war - by providing key supplies to the healthcare sector; cash transfers to individuals who lost their jobs; and "exceptional support" like wage subsidies to private companies.
"If policies ensure that workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved, the recovery will occur sooner and more smoothly," the IMF said.
"Greater intervention from the public sector" was warranted, said the IMF, while the pandemic lasts.
Which is why one is baffled by the seemingly tardy and business as usual approach of the Treasury and the Minister.
It's like they are operating from a different planet to everyone else.
Dear, Mr President
Early in the week more than 100 economists, policy experts, researchers and social commentators wrote an open letter to the President.
The list has now grown to 230 with more continuing to add their names. One hopes that the President will take the issues they’re raising seriously.
These are not ideological issues but proposals which, if implemented, may help us weather the storm, especially the expected collapse of the economy.
They expect the GDP to contract by between 1.8 and 7%, with devastating impacts on jobs and livelihoods.
Some of the measures that they have called for most which I support are:
- Protecting the most vulnerable
- Supporting households and communities
- Targeted temporary and compulsory payment holidays
- Ensuring food security
- Guarantee of wage payments
- Ensure additional health and safety provisions for essential workers
- Expand access to low-rate emergency services
- Strengthen the requirements for resource pooling between the private and public healthcare providers
- Scale up government attempts at local production of critically needed health products, medicine and equipment
- Scale up efforts to ensure greater access to water and sanitation
- Relook monetary and fiscal policies including the current MTEF (Medium Term Expenditure Framework)
A number of them have already been implemented or are being undertaken to varying degrees.
It is important for the president to engage with these proposals and decide which ones makes sense and can be implemented, taking into account limited resources and capacity.
A silver lining, but dark clouds abound
Yi biwa ya na ri na mahika is a Xitsonga saying - strike when the iron is still hot.
The procurement and deployment of mobile testing units and health workers will go a long way to giving the country a clearer picture of the extent of the spread of the pandemic.
The experiment by the Gauteng provincial government to target areas such as Alexandra, Diepsloot and Zandspruit is also to be welcomed and it is hoped that this is going to be a countrywide campaign as announced by government.
But, informal businesses, hardest-hit by lockdown restrictions are unlikely to benefit from some of the measures announced by the government; poor communities will go hungry; and many informal sector workers will lose their jobs.
The struggle continues.
