South Africa will require significant resources to fund the coronavirus battle and, because funding is lacking, the country should be open – or at least not be surprised by – (temporary) funding options that would have been unthinkable a mere two months ago, the Bureau for Economic Research (BER) has found.
Referring to President Cyril Ramaphosa's announcement last Thursday that South Africa's national lockdown will be extended until the end of April as “there is sufficient evidence to show that the lockdown is working”, the BER acknowledges that South Africa’s curve of confirmed Covid-19 cases has flattened in the last number of weeks.
As such, the lockdown extension will be used to ramp-up public health interventions and to do further testing.
In his speech on Thursday, Ramaphosa emphasised that South Africa still had a long road ahead in a “monumental struggle” to rid the country of the disease.
These comments were echoed by a health ministry presentation on Monday night, where one of the key takeaways was that it is almost inevitable that South Africa will hit an exponential curve of new infections, the BER says.
It explains that one of the major aims of the lockdown is to flatten the curve to buy the health sector some time to prepare for the likely infection surge that is still to come. Increasingly, it is becoming clear that a return to normality without any restrictions on movement and without physical distancing is not weeks away, but rather months.
However, the BER says South Africa “probably needs to get past the winter months first”.
In this vein, the bureau emphasises that “it is crucial” that government plans for a Covid-19 policy strategy that can be sustained for a long time.
While necessary from a health perspective, the severe impact on the economy suggests that it is unlikely that the current full-scale lockdown measures can be extended for much longer. However, the BER acknowledges that, finding a balance between saving lives and sustaining livelihoods, “is extremely hard”.
In his address, Ramaphosa noted that government would consider how to implement “risk-adjusted measures” to slowly start to open up parts of the economy. The BER says this process will need to be strictly controlled.
While the President provided no further details, the BER notes that it is speculated this might, for example, include the reopening of take-away food services.
Regarding livelihoods, Ramaphosa says that additional “extraordinary measures” will be required in coming weeks and months to mitigate against the sudden loss of business and household income.
Indications are that Cabinet will this week debate a more comprehensive package of support measures, according to the BER.
“We have continuously argued that notwithstanding South Africa’s precarious debt levels and reduced creditworthiness, this crisis requires an aggressive fiscal response.”
To finance this, South Africa might have to turn to the external loan facilities provided by the International Monetary Fund (IMF) and/or the World Bank, the BER notes, adding that “there was some positive news” on this front last week.
The IMF has doubled the maximum size of the unconditional emergency loans it provides for natural disasters.
Rough calculations suggest that South Africa will be able to access about R60-billion in emergency funding through this facility.
However, in the absence of additional external funding, the BER says the risk is that government will pursue less-optimal financing options. These include forcing public and private pension funds to buy a statutory minimum amount of government bonds and, linked to this could be a tightening of foreign exchange controls which reduces the amount of pension fund investments that may be shifted overseas.
Ultimately, the BER says the South African Reserve Bank (SARB) may also be required to step up its government bond purchases in the secondary market.
The repo rate was cut by another 100 basis points on Tuesday morning, in line with the BER's expectations that this would potentially take place this week, considering that South Africa's nationwide lockdown was extended last week and global central banks are continuing to announce aggressive support measures.
Although this may already have been earmarked to finance earlier interventions, the Finance Ministry could also tap the R15-billion contingency reserve budgeted for in the medium-term expenditure framework.
Other sources of financing could include the immediate auctioning of the long-delayed radio spectrum to mobile operators. According to the BER, the estimates vary, but this could result in a boost of between R10-billion to R15-billion boost to State revenues.