‘Revenue shortfall justifies seeking loans from IMF, World Bank’
The government has been facing criticism, even from the governing party’s alliance partners for approaching the International Monetary Fund (IMF) and the World Bank for R95billion in Covid-19 loans, in addition to fiscal reprioritisation.
Last month, the IMF approved a short-term liquidity line to provide emergency financial assistance and debt relief to member countries facing the economic impact of Covid-19.
Finance Minister Tito Mboweni told Parliament’s committees on finance last week that the government had to fill the gaps in the fiscus, as tax revenue had weakened.
“In this current situation, we expect revenue collection to come down probably by some 32percent or more, which means that we have less revenue, but greater pressures on the fiscus to spend,” Mboweni said.
“When people are demanding more expenditure with revenue coming down, how do you close the gap? You close the gap by borrowing, restructuring your expenditure, closing some programmes altogether and focusing on growth-enhancing measures and those that are unavoidable.”
Ratings agency S&P last week downgraded South Africa’s sovereign credit ratings further into sub-investment territory on forecast that the country’s net debt levels would rise to more than 75percent of gross domestic product by the end of this year. The SA Revenue Service (Sars) last month reported that revenue collection worsened during the financial year to the end of March, with a shortfall of more than R66bn as company income tax dwindled on weak economic growth.
Sars said its preliminary results showed that it collected R1.356trillion against the estimated R1.422trln made during the 2019 Budget. Sars Commissioner Edward Kieswetter last week said the revenue collector was anticipating further significant tax declines on weak economic growth, and on the R70bn tax-relief measures announced by the government.
Kieswetter said Sars would lose billions of rand more this year, despite announcing a trade surplus of R24.8bn in the year-to-date.
“Trade surpluses would ordinarily be good news, except in this case we are in the trade surplus because of the decline of imports which reflect the level of consumption in the domestic economy,” Kieswetter said.
“Whereas it ordinarily would be good news, it actually is a bad indicator of the state of our domestic economy. We are already R13bn down on revenue driven mainly by VAT, excise, import duties, and pay-as-you-earn.
“I have to indicate that this is likely to get significantly worse once the tax-relief measures kick in, because that then introduces further deferral in these payments.”
Mboweni said despite certain people having ideological positions about the IMF, the lender of the last resort had clarified the various debt facilities it had for low to high-income level economies.
“We would qualify for the medium- middle income country facility. We have not begun any negotiations. It’s a long process which will take a number of weeks. But we have not closed the window. It’s something that we should still look at if it’s going to be favourable for us,” he said.
“Will there be any conditions attached? My understanding is that there will be no conditions attached. In fact, I’m not interested in discussing conditionalities with the IMF. I think we know what to do with our economy,” Mboweni said.