Holding up the mirror to our harsh realities
Mboweni told Parliament that the failure to arrest spending more than it had would result in it defaulting on its debt obligations, opening it up to approaching international lenders to service its debt. “As the wise farmer will tell you,” Mboweni said, “when the tempest is raging, you must protect your plants from damage. Our aloe ferox, like our people, is protected.”
Mboweni said gross domestic product (GDP) was now expected to decline 7.2 percent from 6.8 percent predicted in February for the fiscal year ending in March 2021 - the largest contraction in nearly 90 years.
Mboweni said the country’s economic outlook was bleak as a result of the weak fiscal framework, rising Budget deficit, and escalating debt-to-GDP ratio. He said the economic outlook had been hit hard by both the collapse in global demand and the restrictions to activity resulting from the coronavirus pandemic.
“Commodity price increases and a weaker oil price have softened the blow, but as a small open economy reliant on exports we have been hit hard by both the collapse in global demand and the restrictions to economic activity,” Mboweni said.
“Inflation will likely register 3 percent in 2020, in line with the outcome of (yesterday) morning.”
Mboweni’s supplementary Budget set out the government's roadmap to stabilise debt by improving spending patterns and creating a foundation for economic revival.
He said the projected total consolidated Budget spending, including debt service costs, would now exceed R2trillion for the first time ever.
Mboweni said the government intended to borrow about $7billion (R121bn) from international finance institutions to support the pandemic response.
“Without external support, these borrowings will almost entirely consume all of our annual domestic saving, leaving no scope for investment or borrowing by anyone else,” Mboweni said.
Gross national debt was now forecast closer to R4trln, or 81.8percent of GDP by the end of the current fiscal year from R3.56trln or 65.6 percent in February. The consolidated Budget deficit would now be R761.7bn or 15.7percent of GDP in 2020/21, compared to R370.5bn in February, Mboweni said.
The narrower measure, known as the main Budget deficit, was projected to be 14.6percent of GDP, mainly due to the revised revenue projections and pay-outs from the Unemployment Insurance Fund.
Mboweni warned that the widening debt was the country's weakness, and this economic downturn will add more as the government has accumulated far too much debt.
He said the government had already spent as much on debt-service costs as it did on health in this financial year.
“This year, out of every rand that we pay in tax, 21cents goes to paying the interest on our past debts,” Mboweni said.
"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.”
Though Mboweni said South Africa was still far from bankruptcy, he nonetheless warned that a sovereign debt crisis would arise if cost-saving measures were not taken now. “We are still some way from that. But if we do not act now, we will shortly get there,” he said.