Adjustment budget preview
Finance Minister Mr Tito Mboweni will be walking an even narrower fiscal tightrope as an already strained government budget finds further stress from the Covid-19 pandemic and subsequent lockdown.
When is the Adjustment budget Speech?
Finance Minister Tito Mboweni will deliver the speech today (24 June 2020) at 3pm. This will be the first untimely revision to the national budget seen in 27 years.
What to expect from the budget speech
In April this year, a R500bn stimulus plan was announced by government to help ease the economic impact of the covid-19 pandemic. While the bulk of the R500bn stimulus package is to be sourced from international funding (sources such as the International Monetary Fund and Development Bank), R130bn thereof was to be found from the reprioritisation of the Fy20/21 baseline budget.
An outline of the Covid-19 fiscal response package is as follows:
- R200bn Credit Guarantee Scheme
- R100bn SME & informal business support
- R70bn Job creation & protection measures for income support
- R50bn Support to vulnerable households over 6 months
- R40bn wage protection (UIF)
- R20bn Health and frontline services
- R20bn Support to municipalities
It seems likely that national departmental budgets will need to be lowered, with spending on non-essential items cut to make way for the economic support package.
In addition to the reallocation of funds to the fiscal relief package, the Finance Minister will also address State Owned Entities (SOEs) need for further liquidity, in particular South African Airways (ahead of its creditors meeting on Thursday 25 June 2020).
Budget deficit
In February’s budget speech, the budget deficit for FY20/21 was estimated by the Finance Minister at 6.8% of Gross Domestic Product (GDP). The impact of weaker revenue collections amidst a contracting economy now suggests that the budget deficit could more than double to between 14% and 15% of GDP, possibly remaining in double digit territory over the Medium-Term Expenditure Framework (MTEF).
In summary
With the country’s debt to GDP now expected to balloon to 80% this financial year, it is important that South Africa can manage to support growth initiatives within the country. While the reallocation of funds to support the unexpected socio and economic damage of the Covid-19 pandemic is necessary, this too stresses the importance for governments need to address necessary structural reforms and hinderances to growth in sectors of the economy such as information, communication and technology sectors. Unfortunately, the challenge for Mr Tito Mboweni’s is to try achieve these objectives while still reigning in spending, an arduous task at best.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Live prices on most popular markets
- Forex
- Shares
- Indices
Prices above are subject to our website terms and agreements. Prices are indicative only
