Home Business Three-phased economic response to COVID-19 pandemic

Three-phased economic response to COVID-19 pandemic


Government has announced a massive social relief and economic support package of R500 billion which amounts to around 10% of Gross Domestic Product (GDP) to mitigate against the blow of COVID-19 in the country.

President Cyril Ramaphosa announced the intervention as the country saw a rise of COVID-19 cases to 3465 with 58 deaths recorded as of Tuesday.

The newly announced support package forms part of the second tier of the country’s three phase economic response to stabilise the economy, address the extreme decline in supply and demand and protect jobs.

The social relief and economic support package that stands at the centre of the second phase will cater for an extraordinary health budget to respond to Coronavirus, the relief of hunger and social distress, support for companies and workers and the phased re-opening of the economy.

“The impact of the Coronavirus requires an extraordinary coronavirus budget – of around R500 billion – to direct resources towards fighting the pandemic. This will include the reprioritisation of around R130 billion within the current budget,” said the President.

The third phase is the economic strategy implemented to jumpstart the recovery of the economy as the country emerges from the pandemic.

The announcement of the reprioritisation of the state’s coffers to fight the pandemic follows recent deliberations at Cabinet, the National Coronavirus Command Council, the President’s Coordinating Council, and the National Economic Development and Labour Council, among others.

IMF, World Bank approached for COVID-19 funds

The President announced that the rest of the funds to fight COVID-19 will be raised from both local sources, such as the Unemployment Insurance Fund, and from global partners and international finance institutions.

To date, government has approached the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank. Work is underway between the National Treasury and these institutions on the various funding transactions.

This funding will be used in the first instance, to fund the health response to Coronavirus through the provision of treatment, additional expenditure on personal protective equipment for health workers, community screening, an increase in testing capacity, additional beds in field hospitals, ventilators, medicine and staffing.

“An amount of R20 billion will be directed to addressing our efforts to address the pandemic,” said the President.

Municipalities receive R20 billion

As the coalface of service delivery, municipalities are among the hardest hit at a time when the demands on them are increasing.

In this regard, additional funding of R20 billion will be made available to municipalities for the provision of emergency water supply, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.

With the Coronavirus crisis set to add to job losses, the President announced that an additional R100 billion will be set aside for the protection of jobs and to create jobs.

An additional amount of R2 billion will be made available to assist SMMEs and spaza shop owners and other small businesses.

Loan guarantee scheme

In partnership with the major banks, the National Treasury and the South African Reserve Bank, government will introduce a R200 billion loan guarantee scheme. This will assist enterprises with operational costs, such as salaries, rent and the payment of suppliers.

In the initial phase, companies with a turnover of less than R300 million a year will be eligible.

The scheme is tipped to support over 700 000 firms and more than 3 million employees during this period. A number of banks are ready to roll out the product before the end of the month.

Tax relief measures

In addition to existing tax relief measures, government will also introduce a four-month holiday for companies’ skills development levy contributions, fast-tracking VAT refunds and a three-month delay for filing and first payment of carbon tax.

To assist more businesses, the previous turnover threshold for tax deferrals is being increased to R100 million a year, and the proportion of PAYE payment that can be deferred will be increased to 35 percent.

Businesses with a turnover of more than R100 million a year can apply directly to SARS for deferrals of their tax payments.

“No penalties for late payments will be applicable if they can show they have been materially negatively impacted in this period,” said the President.

Additionally, taxpayers who donate to the Solidarity Fund will be able to claim up to an additional 10 percent as a deduction from their taxable income.

In total these tax measures should provide at least R70 billion in cash flow relief or direct payments to businesses and individuals.

The Finance Minister is expected to flesh out further details on the tax-related announcements when he tables the adjusted budget.

Re-opening of the economy

The fourth area Cabinet deliberated on was the phased re-opening of the economy.

The President said the reopening of the economy will follow a risk-adjusted approach, balancing the continued need to limit the spread of the coronavirus with the need to get people back to work.

“As we do so, we remain firm in our resolve to contain the transmission of the virus. We will therefore need to act with agility and flexibility in the weeks and months ahead, and respond to the situation as it develops,” he said.


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