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Supplementary budget speech

Treasury expects Real Gross Domestic Product (GDP) growth in South Africa to decline by 7.2% in 2020, largely due to the restrictions on economic activity attempting to contain the spread of the pandemic

Source: Bloomberg

The economic outlook

The COVID-19 pandemic and the emergency health response have brought about a severe global recession which is set to worsen what was already a weak economic outlook for South Africa. Treasury now expects Real Gross Domestic Product (GDP) growth in South Africa to decline by 7.2% in 2020, largely due to the restrictions on economic activity attempting to contain the spread of the pandemic.

Expenditure

In his supplementary budget speech, Finance Minister Mr Tito Mboweni has highlighted that expenditure is projected to increase to 37.2% of GDP in 2020/21. The increase in expenditure is mainly due to the need to provide support to state-owned enterprises (SOEs), COVID-19 spending as well as higher debt-service costs.

Tax revenue shortfalls, contraction in GDP and higher spending as a result of the pandemic will lead to a significant increase in the main budget deficit in the current financial year. The budget deficit is now projected at 14.6% of GDP more than the double the 6.8% estimated at February’s meeting.

Over the medium term, main budget non-interest expenditure is expected to decrease as a share of GDP. Spending reductions amounting to about R230 billion are required in 2021/22 and 2022/23, followed by further reductions in 2023/24. These measures are in addition to proposed medium-term reductions of R160.2 billion to the public-service wage bill set out in the 2020 Budget, which are yet to be finalised.

The Finance Minister has tabled the following revisions to spending in lieu of the Covid-19 relief package:

  • Consolidated spending for 2020/21 has been revised from R1.95trn to R2.04trn
  • The increased spending mainly due to R145bn allocation to governments Covid-19 response
  • Net in-year suspensions of spending amounting to R100.9 billion have been implemented for national departments, provinces and local government
  • Further suspensions may be announced in the October 2020 Medium Term Budget Policy Statement (MTBPS)
  • Provinces will reallocate at least R20 billion to the COVID-19 response in their own budgets

National Debt

Gross national government debt is projected to increase from 63.5% of GDP in 2019/20 to 81.8% of GDP in 2020/21. By the end of 2022/23, gross loan debt is expected to amount to 86% of GDP.

State Owned Enterprises (SOEs)

Further funds being allocated to SOEs will we strictly conditional to these companies improving their respective balance sheets. The special adjustments budget includes an additional allocation of R3 billion to recapitalise the Land Bank. No other in year spending adjustments are proposed for SOEs.

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