Johannesburg – South Africa's economy is now expected to contract by 7.2 percent in 2020, its largest shrinkage in nearly 90 years, dragged down by the ravages of the Covid-19 global pandemic, Finance Minister Tito Mboweni said on Wednesday.
Presenting a supplementary budget to Parliament via video conferencing because the pandemic has necessitated physical distancing, Mboweni placed infrastructure development at the centre of reviving economic growth.
He said commodity price increases and a weaker oil price had softened the blow, but that as a small open economy reliant on exports South Africa had been hit hard by both the collapse in global demand and the restrictions to economic activity brought on by the health crisis.
A supplementary budget review also published by the National Treasury on Wednesday said millions of jobs were at risk and millions of households were experiencing increased hardship.
"The pandemic has had a profound impact on South Africa," the National Treasury said.
"All economic sectors have experienced a sharp downturn and small businesses in particular face extreme pressure. Tax revenue projections are down sharply."
In its main budget review in February, the Treasury had predicted economic growth of 0.9 percent in 2020 for Africa's most industrialised economy compared with a modest 0.2 percent last year.
On Wednesday, the department said the epidemiological path and economic consequences of the coronavirus pandemic were both highly uncertain and evolving rapidly, necessitating rapid adjustments in policy and forecasts.
It said over the past three months, the government had prioritised public health to save lives and had taken the difficult step of severely restricting economic activity at a time when gross domestic product (GDP) growth was already weak.
"South Africa’s R500 billion fiscal relief package is designed to help households and businesses to weather the short-term effects of the crisis," the Treasury added.
The Treasury noted that it had for several years been warning that an absence of fiscal space would leave South Africa vulnerable to external shocks.
"That risk is now a reality," it said. "At the time of the (February) 2020 budget, economic growth was already low and the fiscal position had deteriorated significantly. South Africa has begun heading into a debt spiral."
In his budget speech, Finance Minister Mboweni proposed R21.5 billion for Covid‐19-related healthcare spending in a supplementary budget tabled in reaction to the pandemic and a further allocation of R12.6 billion to services at the frontline of South Africa's response to the health crisis.
"Allocations have been informed by epidemiological modelling, a national health sector Covid‐19 cost model and our experiences over the past 100 days," he said.
"This money partly supports increased screening and testing, allowing us to open up more and more of the economy."
He said the country had successfully increased its Covid‐19 bed capacity to above 27 000, identified 400 quarantine sites with a capacity of around 36 000 beds across the country and deployed nearly 50 000 community healthcare workers to screen millions of South Africans.
Over 1.3 million people had been tested to date, he added.
The country's nine provinces would add at least R5 billion for an education catch‐up plan, social welfare support for communities and the provision of quarantine sites by public works departments and responses in other sectors.
The finance minister said the government remained deeply concerned about the path of the virus.
"But, in common with several other countries that adopted a stringent, early lockdown, we have 'flattened the curve' and saved lives," he added.
"The storm is not over. But, if we follow the health guidelines and make the right decisions to prepare for a new global reality then, soon enough, the days will grow calmer."
Mboweni said building a bridge to a future beyond the current lockdown imposed to curb transmissions of Covid-19 would require building high‐quality physical bridges, roads, railways, ports and other infrastructure.
"Infrastructure will be the fly wheel by which we grow the economy," the finance minister said.
"Just as we have toiled together to manage the pandemic, let us harness this same unity of purpose and build the infrastructure our nation needs. Our efforts to reduce consumption expenditure will also change the composition of spending in the direction of investment."