Tito Mboweni, the minister of finance, tabled the 2020 medium-term budget policy statement before parliament today – revealing strained finance and little room to manoeuvre South Africa’s struggling economy.
Mboweni said that since the emergency budget that was tabled in June, more data has become available regarding the impact of the pandemic and government’s consequent lockdown on the economy. He said the economy is expected to contract by 7.8% this year.
The outlook for 2021 is more certain. Current forecasts are that South Africa’s economy will grow by 3.3% in 2021, 1.7% in 2022, and 1.5% in 2023. Fiscal measures, primarily focusing on reductions to the national government wage bill, will narrow the budget deficit and stabilise debt over the next five years to return public finances to a sustainable position. The consolidated deficit narrows from 15.7% of GDP in 2020/2021 to 7.3% by 2023/2024/ The Gross national debt is projected to stabilise at 95.3% of GDP by 2025/2026, the minister explained.
MAIN POINTS OF THE BUDGET
Mboweni stated that the country will take years to get back to pre-Covid GDP. A recession is expected for 2020 before real GDP growth can climb again. GDP is expected to grow an average of 2.1% over the medium term and return to pre-pandemic levels by 2024. Mboweni warned that a second wave of infections and a new restrictions on economic activity would have significant repercussions.
The Governments options to stabilise the fiscus are becoming increasingly limited. The Fiscal environment has deteriorated significantly over the past five years due to debt interest payments absorbing a growing share of limited public resources, underspending, and a deteriorating government balance sheet, which includes state-owned companies and municipalities struggling to pay wages and operational costs.
Over the next three years Treasury will aim to reign in spending over the next three years to the tune of R300 billion. The largest share of reductions falls on compensation, Other non-interest spending items will be reduced while protecting funding for buildings, fixed structures, provincial and local capital grants, and the Infrastructure Fund.
An increased tax collection of R40 billion over the next three years. The aim is to reach a main budget primary surplus by 2025/2026.
THE WAGE BILL
Government proposes growth in the public-service wag bill of 1.8% in the current year and average annual growth of 0.8% over the 2021 MTEF period. Treasury has not implemented the third year of the 2018 wage agreement while the matter is still before the labour court. Government is however actively engaging with labour unions to find a solution to more sustainable employment costs.
R10.5 billion has been allocated to SAA to implement its business rescue plan. This will be funded through reductions on the baselines of national departments, public entities, and conditional grants. This allocation is in addition to the R16.4 billion allocated over the 2020 MTEF in the February budget for settling guaranteed debt and interest. “Our approach is in line with the principle that funding to state-owned companies must come from within the current framework and reprioritised from elsewhere. We cannot break the fiscal framework,” the minister said.