Finance Minister Tito Mboweni in his emergency budget speech laid out his proposed roadmap to stabilise debt, by improving the country’s spending patterns in order to create a foundation for economic revival post-Covid-19.
This will be a tough ask though, as projected total consolidated budget spending, including the cost to service the country’s massive debt bill, will exceed R2 trillion for the first time ever.
Meanwhile, gross tax revenue collected during the first two months of 2020/21 was R142 billion, falling R35.3 billion short of the projected R177.3 billion. As a consequence, gross tax revenue for the 2020/21 fiscal year is revised down from R1.43 trillion to R1.12 trillion.
This will lead to a tax shortfall of over R300 billion.
Mboweni said public finances are “widely overstretched”, and as if to warn of the biblical proportions of the challenges lying ahead, compared the two possible paths lying ahead to the narrow and wide gates described in Matthew 7:13-14.
“If we remain passive, economic growth will stagnate. Our debt will spiral inexorably upwards and debt‐service costs will crowd out public spending on education and other policy priorities. We already spend as much on debt‐service cost as we do on Health in this financial year. Eventually the gains of the democratic era would be lost,” the finance minister warned.
“The wide gate opens to a path of bankruptcy.”
He warned of a possible sovereign debt crisis, saying though still far from being unable to pay back the interest or principals on the country’s debt, “if we do not act now, we will shortly get there.”
Harking back to other countries which had face this situation in the past, such as Germany in the 1920s, and Argentina and Zimbabwe in the early 2000s, and the apartheid government which had to declare a debt standstill, Mboweni said: “We firmly reject this gate!”
His preferred path, or as he referred to it, the narrow gate, leads to a “path of prosperity”, the minister said.
“Through this gate, we reduce our reliance on borrowing. We feed the hungry. We look after the sick. We educate our people. We build for the future. We spend with wisdom, and we jail those who loot.
“The narrow gate is an active approach – a nation that takes active steps to rapidly stabilise debt and grow the economy. By doing this we will create jobs, reduce the cost of doing business and build a competitive economy.”
He announced plans to borrow about US$7 billion to support the pandemic response, but warned that these loans are not a source of revenue and will add to the debt that must be paid back.
Early projections show that gross national debt will be close to R4 trillion, making up an estimated 81.8 per cent of the country’s Gross Domestic Product by the end of the fiscal year.
Health and frontline services
Mboweni’s Supplementary Budget proposes R21.5 billion for Covid‐19‐related healthcare spending, along with a further R12.6 billion to frontline pandemic response services.
He said these allocations were informed by epidemiological modelling, as well as the experiences over the past three months.
The money will go toward increased screening and testing, which would allow for further sections of the economy to reopen.
Provinces will also benefit from at least R5 billion each, “for the education catch‐up plan, social welfare support for communities and provision of quarantine sites by Public Works departments and responses in other sectors.”
Mboweni says tariffs have been agreed with private hospitals to supplement public sector Covid-19 capacity.
Job creation and grants
Impoverished South Africans, unfortunately, can expect Covid-19 relief grants to come to an end in October.
There are, however, plans to deal with unemployment, with an “Economic Support Package” which sets aside R100 billion for a “multi‐year, comprehensive response to our jobs emergency.”
There is also a further R19.6 billion allocation to the already allocated R6.1 billion Presidential Youth Employment Intervention.
Division of revenue
Changes to the division of revenue saw the national share for 2020/21 increasing from R758 billion to R790 billion, while the provincial share decreases from R649 billion to R645 billion. Due to local government being at the heart of government’s Covid-19 response, the local government share is increased by R11 billion, from R133 billion to R140 billion.
“Municipalities will adjust their budgets to take into account the sharp decline in revenue as a result of the pandemic. We urge communities to hold councils accountable for the spending of Covid‐19 funds,” Mboweni said.
Mboweni said “National Treasury will also monitor the spending through monthly and quarterly reports.”
Infrastructure to lead the way forward
“Infrastructure will be the flywheel by which we grow the economy,” according to Mboweni, who said the country must build the infrastructure it needs.
“Yesterday, the Presidency hosted a successful Sustainable Infrastructure Development Symposium, drawing in sector specialists, technical and financial structuring experts and policy departments that have considered 177 infrastructure projects across public and private sectors.
“In light of these and other important initiatives, the government has already committed R100 billion over ten years toward the Infrastructure Fund. Together with the Development Bank of Southern Africa, we have identified projects that will be funded through the Budget Facility for Infrastructure. We have recently released a paper on Sustainable Finance, and we are working closely with the private sector to green our economy.”