Stimulus ‘will be applied with fiscal care’
The Treasury has given the emphatic assurance that any stimulus package to ignite economic growth will not undermine fiscal prudence and will be funded through the reprioritisation of the existing budgetary resources.
According to Business Day sources, the government will need R43bn to fund the stimulus package as well as to assist state-owned enterprises. This emerged from discussions about the package at last week’s cabinet lekgotla.
Concerns have been raised over how a financially constrained fiscus that is facing pressures on both the revenue and expenditure sides of its budget would find the money for the stimulus package that was announced by President Cyril Ramaphosa two weeks ago.
With sluggish economic growth expected to be lower this year than the 1.5% forecast by the Treasury at the time of the February budget, tax revenues are also unlikely to reach the targets set.
At the same time struggling state-owned enterprises such as Eskom, SAA and the South African National Roads Agency are in need of substantial cash injections to keep them afloat.
Business and investor sentiment remains low with policy uncertainty a key element.
This was fuelled by Ramaphosa’s announcement that the ANC would proceed with an amendment to the constitution to clarify the circumstances under which privately owned land can be expropriated without compensation.
On Monday the Treasury said that Ramaphosa has made it clear that “the funding for measures being considered to ignite economic growth would be done in a manner that ensured that government maintained fiscal prudence”.
“Consideration of the funding for these measures will be done through normal budgetary processes, which include preparatory work and presentation of recommendations by the national Treasury to the ministers’ committee on the budget, a cabinet subcommittee chaired by the minister of finance, which in turn makes recommendations to the cabinet.
“The measures that are being considered for igniting economic growth will be funded through the reprioritisation of existing budgetary resources.
“Further details on these measures will be announced by the president in due course,” the Treasury statement said.
In his announcement Ramaphosa said the package of stimulus measures would include increased investment in public infrastructure; increased support for entrepreneurship and employment opportunities for women, youth and small and medium businesses; trade support measures for sectors such as sugar; ensuring that procurement is localised; and training for unemployed youth.
These kinds of stimulus measures will take some time to plan for and implement so it is unlikely that the envisaged stimulus package will give a major boost to economic growth in the short term — although this is the immediate priority facing the country with its very high rate of unemployment.