President Cyril Ramaphosa has announced a R500 billion economic support package to help battle the impact of the coronavirus pandemic – equal to about 10% of the country’s annual GDP.
In a national address on Tuesday (21 April) Ramaphosa said that the relief package will be used to support the vulnerable South Africans, and to respond to the impact of the lockdown on workers and businesses.
Ramaphosa said that this money will be raised locally through institutions such as the Unemployment Insurance Fund (UIF), and through international groups such as the International Monetary Fund.
Some of the specific measures announced by Ramaphosa include:
- A special coronavirus grant of R350 per month will be paid to the unemployed for the next six months;
- Grant beneficiaries will receive an extra R250 for the next three months;
- An additional R200 billion loan guarantee scheme, which will assist enterprises with additional costs, such as salaries and paying suppliers. In the initial phase, companies with turnover under R300 million a year will qualify to participate in this scheme. The scheme is being run in partnership with major banks, National Treasury and SARB. The scheme will launch before the end of the month;
- The threshold for tax deferrals will be R100 million a year;
- R40 billion has been set aside for income support through UIF for employees whose employers unable to pay wages;
- R100 billion has been set aside for the creation of jobs.
The president noted that the country is in the second phase of a three-phase economic response to the coronavirus pandemic. These phases are as follows:
The first phase involved broad measures to mitigate the affect of the virus on businesses and individuals. This included:
- Tax relief;
- Release of disaster funds;
- Emeregency funding;
- Wage support through UIF.
The second phase – which is where the country currently finds itself – needs to address the decline in supply and demand, and protect jobs.
For this, government is providing a social and economic support package of R500 billion. This will go towards:
- Additional health relief efforts;
- Addressing hunger;
- Helping businesses;
- Working towards re-opening the economy.
R130 billion of this funding will come from reprioritisation of the budget. The rest will be funded internally and externally – including approaching the World Bank, IMF, Development Bank and others.
The third phase of the economic response is still to come, but will focus on:
- An economic strategy to drive recovery;
- Measures to stimulate demand and supply;
- A substantial infrastructure build programme.
South Africa has never had to deal with a public health emergency on the scale of the coronavirus pandemic. Extraordinary funding measures totalling R500bn are being channelled into healthcare, vital municipal services & social relief. #COVID19 #CoronaVirusSA pic.twitter.com/hzI6ZlFstJ
— Presidency | South Africa 🇿🇦 (@PresidencyZA) April 21, 2020
Phased reopening of the economy
Ramaphosa said that cabinet had agreed that South Africa needed to get the economy up and running again, but had to do so cautiously.
“As I have said previously, if we end the coronavirus lockdown to abruptly we face the uncontrollable spread of the disease,” he said. “We will therefore follow a phased approach in reopening the economy.”
He said that government will balance the need to ensure that infections are minimised, with the need to get people back to work.
More details of the approach will be announced on Thursday, he said.
South Africa is entitled to as much as $4.2 billion in emergency funding from the International Monetary Fund should it request financial support to fight the coronavirus, Bloomberg reported.
Some senior officials in the ANC and its alliance partners have shot down a suggestion by finance minister Tito Mboweni that the government might seek help from multilateral lenders for health funds, saying the structural adjustments associated with loans from the institutions would undermine the nation’s sovereignty.
However, Montfort Mlachila, the IMF’s senior resident representative in South Africa, said no such conditions would be attached under the rapid financing instrument, through which the country could access emergency assistance, Bloomberg said.
Typically, countries seeking assistance would write to the lender’s managing director describing the nature of the shock it is facing, its socio-economic impact and how it would use resources from the fund, he said in a phone interview on Tuesday.
“The country also commits to general good economic management and transparency in the utilization of resources,” Mlachila said. While it’s not a blank check and principles of good governance should be observed, “there is no ex-post conditionality for such a request,” he said.
Such a loan would be payable over 3.25 to five years and at an interest rate of just above 1%, he said.Mlachila said that South Africa’s government has not yet approached the lender.The IMF sees South Africa’s economy shrinking by 5.8% in 2020.