Budget depicts coronavirus havoc on South Africa’s economy
JOHANNESBURG - South African Finance Minister Tito Mboweni delivered a grim assessment of the nation’s finances in a special adjustment budget that forecast a deep recession, plunging tax revenue and surging state debt.
Gross domestic product is projected to contract 7.2% this year, the most in almost nine decades, with a rebound to 2.6% growth next year. A 15.7% consolidated budget deficit is expected this fiscal year, while the gross debt-to-GDP ratio is set to reach 81.8% this year and peak at 87.4% in 2023-24.
“We have accumulated far too much debt; this downturn will add more,” Mboweni said Wednesday in a speech to lawmakers in Cape Town. “Our Herculean task is to stabilize debt.”
The rand weakened as Mboweni spoke, declining as much as 0.9% against the dollar.
South Africa was already mired in recession and contending with power shortages when the coronavirus pandemic struck. Turnaround efforts were upended when the government imposed a stringent lockdown in late March to try and slow the disease’s spread. While some restrictions have since been eased, many businesses have already gone bust and widespread job losses are set to worsen a 30.1% unemployment rate.
The government cut its revenue projection for the current fiscal year to 1.12 trillion rand ($64.6 billion), from 1.43 trillion rand it estimated in February. An additional 40 billion rand in tax will be raised over the next four years, while 230 billion rand in spending cuts will be effected over the next two years to try and contain debt, with details to be announced in the 2021 budget speech, Mboweni said.
South Africa has had 106,108 confirmed coronavirus cases so far, the most in Africa, and 2,101 of those who contracted the disease have died.
The supplementary budget redirected money to programs aimed at containing the fallout from the pandemic, with the health department allocated an additional 21.5 billion rand to build field hospitals and hire more staff. It also provides 40.9 billion rand to support vulnerable households for six months, 20 billion rand to shore up municipal finances and 12.5 billion rand to education.