SA’s economy expected to contract by 7.2% in 2020

The government has been occupied with saving lives amid the Covid-19 pandemic and has also had to deal with saving an already damaged economy. In his supplementary budget, presented virtually to Parliament on Wednesday, Finance Minister Tito Mboweni said the economy has suffered a huge blow and that it will contract by 7.2% in 2020. 

This is the biggest decrease in nearly 90 years. 

The treasury’s gross domestic product estimate is a bit higher than the South African Reserve Bank’s forecast of 7%. 

Adding to South Africa’s financial woes is the projection that the government will miss its tax collection target for this year by more than R300-billion. Mboweni said tax collected during the first two months of 2020-2021 was R142-billion, compared to their initial forecast of R177.3-billion. 

This was mainly attributed to the tax breaks announced last month amounting to R26-billion and delays in tax collection of about R44-billion.


Even though the numbers are depressing, Mboweni said this supplementary budget will set a roadmap to stablise debt by improving spending patterns, and creating a foundation for economic revival. 

The total consolidated budget spending is expected to include debt service costs, which will exceed R2-trillion for the first time. 

Work needs to be done to narrow the budget deficit and the debt and debt-service costs, he said. Failure to do so would thwart South Africa’s long-term economic prospects. 

Mboweni said he has found a narrow gap that can usher the country out of the looming sovereign debt crisis. The government will work to slim the deficit and stabilise debt at 87.4% of gross domestic product (GDP) in 2023/2024 by using zero-based budgeting, which will be adopted in the medium-term budget.

The consolidated budget deficit is at 15.7% of GDP in 2020/2021 compared with the 6.8% announced in the February budget. As a result, the country’s overall debt will be close to 81.8% of GDP for the year, compared with a projected deficit of 65.6% GDP in February. 

In March, the government announced a R500-billion social and economic relief package. This included support for distressed businesses and workers, an increase in social grants, an extraordinary health budget (R21-billion) and supportive monetary and financial market measures.

At nearly 100 days under lockdown, more than one million Covid-19 tests have been done  and the number of public-sector tests has more than doubled over the past month, averaging about 14 000 tests a day.

The government had initially committed R50-billion towards Covid-19 temporary grants, which includes increases to the child and old age grants as well as an unemployment grant. The government has now committed R40-billion towards these budgets. 

“The uptake of the special grants has been slow and [now] we are providing best estimates and that’s why we reduced the allocation”, treasury director general Dondo Mogajane said in a media briefing after Mboweni’s presentation. 

More than 18-million South Africans have received a temporary Covid‐19 grant, while 1.5-million people have received the unemployment grant. 

“To support vulnerable households an additional allocation of R25.5-billion to the social development department is proposed, for a total relief package of R41-billion. All these measures will come to an end in October,” Mboweni said. 

The Unemployment Insurance Fund has provided R23-billion in Covid‐19 relief to more than 4.7-million workers who have had their incomes reduced because of the pandemic. 

The loan guarantee scheme lent more than R10-billion to distressed businesses since its launch last month. Mboweni said the uptake of the scheme has been slow, but this is expected to change because more businesses require funds to restart as the country moves further into level three of the lockdown. 

Initially, the scheme was intended to support businesses with an annual turnover of under R300-million, but this has now changed and the scheme will support all businesses regardless of their annual turnover. 

The conditions for the scheme have also been relaxed. Mboweni said the amended regulations include supporting non-bank lenders, relaxing the repayment holiday and turnover limit and “conditions to support lending”.

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Tshegofatso Mathe
Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian.
Thando Maeko
Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian

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