SA’s fiscus still has ‘plenty of room’ to cope with Covid-19 expenditure
PUBLIC finances could come under further pressure this year due to the fight against Covid-19 pandemic, but economists have remained optimistic that there was plenty of room to absorb the extra spending.
The National Treasury yesterday allocated more than R4 billion extra to purchase Covid-19 vaccines and to extend the special distress grant (SRD).
Treasury director-general Dondo Mogajane yesterday tabled a Special Appropriation Bill to Parliament which would be enacted if passed by Members of Parliament.
The Bill allocates an additional R1.25bn to the Department of Health to procure vaccines, and implement a related Covid-19 research project.
Another R2.83bn was appropriated to the Department of Social Development to fund the extension of the special Covid-19 SRD R350 grant.
Mogajane said the National Treasury was “on track” to finance the country's vaccination drive in spite of the heavy burden the pandemic has placed on the fiscus.
On Sunday, South Africa received its first consignment of Pfizer vaccines with a batch of 325 000 doses of the 20 million total doses committed by the American pharmaceutical group.
He said the Treasury had committed to financing the fight against Covid-19 as a public good. “In this current financial year we have set aside R4.35bn towards this programme, and we will be closely monitoring this,” Mogajane said. “If need be, at the
Adjustment Budget if we need to augment this we will do that.”
An extra R4bn spending could raise eyebrows given that the government is declining to honour the last leg of the 2018 public sector wage agreement.
The government is also on a wage freeze as part of fiscal consolidation due to the weak fiscus.
Anchor Capital's investment analyst Casey Delport said an expenditure of this nature raises questions regarding the viability of the fiscus given the strained public finances.
Delport, however, said it was important to note that National Treasury's finances were in a better position than it had initially forecasted. The full-year 2020/21 main budget deficit stood at R551.9bn, which was R51.5bn or about 1 percent of GDP smaller than the National Treasury's target in February.
“Thus currently there is plenty room to absorb the extra R4bn in spending,” Delport said.
“Nonetheless, any additional expenditure announcements will naturally raise questions regarding the National Treasury's fiscal consolidation drive. It remains crucial that treasury continues to reign in expenditure wherever feasibly possible.”
This extra spending could also be seen as a confidence booster which might save South Africa from a ratings downgrade given the recent improvements in economic activity and fiscal data.
Investec chief economist Annabel Bishop said South Africa risks a credit rating downgrade from both Moody's and Fitch this month if downside risks to fiscal metrics remain elevated.
Bishop said the credit rating agencies were still concerned that South Africa's planned debt projections were too high, and appeared not convinced by the downward revisions.
“South Africa's debt burden is still seen to be very high, with risks to the achievement of the new Budget estimates,” she said.
“We don't expect that Moody's and Fitch will downgrade South Africa this month, but that they will keep careful watch this year to see if the new debt and deficit projections can be met.”
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