SOUTH AFRICA’S NEW NORMAL

CENTURION Pretoria, South Africa, 25 June 2020.

When Finance Minister Tito Mboweni presented the Treasury's first budget in February of this year, South Africa’s economy was already troubled – well before the coronavirus pandemic had reached us. 

Back in Parliament on Wednesday (via video conference) Mboweni presented another revenue division bill because, for the first time, the Treasury has had to deliver a supplementary budget. All of this in light of the fact that, after the first Budget, the minister already faced widespread upset due to his attempts to ‘trim some fat’.

This supplementary budget needs to cushion the country from the impact of Covid-19 – boosting and supporting incomes for the poor; limiting job losses and income support for those who do lose their jobs; and preventing the closures of mainly small and medium businesses.

The country's official unemployment rate has now risen to 30.1% – a number likely to climb as it only covers the period prior to this pandemic gripping our country. "The figures from yesterday show that unemployment is our single greatest challenge," Mboweni told Parliament on Wednesday.

He also said that debt continues to remain "our weakness".

"We have accumulated far too much debt; this downturn will add more. This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts. This indebtedness condemns us to ever higher interest rates. If we reduce debt, we will reduce interest rates for everyone, and we will unleash investment and growth. So today, with an eye on the future, we set out a strategy to build a bridge to recovery."

This economic outlook is now very different for the country, which means that the Treasury has had to apply for large loans and reprioritise departments’ and government programmes.

The South African economy is now expected to shrink by 7.2% in 2020, the largest contraction in nearly 90 years. Inflation will likely register three percent in 2020. While commodity price increases and a weaker oil price have softened the blow, South Africa has a small open economy reliant on exports that have been hit hard by both the collapse in global demand, and the restrictions to economic activity. 

RE-PRIORITISING GOVERNMENT EXPENDITURE

The country's fiscal framework for 2021/22 has changed dramatically. The projected total consolidated budget spending will exceed R2 trillion for the first time. Tax revenue collected is much lower than projected – for the first two months of 2020/21 it has been R142 billion, instead of the R177.3 billion initially projected. Mboweni says the government expects to miss its tax target for this year by over R300 billion.   

For help, the country has turned to the International Monetary Fund, the World Bank, African Development Bank and the BRICS partnership.

"The discussions are tough, but we think we have come to... an understanding...  The IMF staff will approach their executive board in July and then the World Bank is likely to follow suit," Mboweni told the media following his speech.

"Without external support... borrowings will almost entirely consume all of our annual domestic saving, leaving no scope for investment or borrowing by anyone else. For this reason, we need to access new sources of funding. Government intends to borrow about US$7 billion from international finance institutions to support the pandemic response. We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back."
    
In this budget, the health department and frontline services to fight Covid-19 have received a much bigger chunk. The budget proposes R21.5 billion for pandemic‐related healthcare spending and a further allocation of R12.6 billion to frontline services.

Another R5 billion is going to education to help students catch up lost school days; to provide social welfare support; and to in the creation of quarantine sites.

In addition, the country's Economic Support Package sets aside R100 billion for a multi‐year, comprehensive response to South Africa’s unemployment concerns. Mboweni says the President’s job creation and protection initiative will be rolled out over the medium‐term and will include a repurposed public employment programme and a Presidential Youth Employment Intervention. A total of R6.1 billion has so far been allocated with a further R19.6 billion set aside.

The Unemployment Insurance Fund (UIF) has already provided R23 billion in COVID‐19 relief to over 4.7 million workers affected by the pandemic.   

THE WAY FORWARD

Still of concern to the state is the public service wage bill. Nearly half of all consolidated revenue will go towards compensating public servants. While there was an expectation that Mboweni would address concerns about these individuals not getting the salary increases agreed to in 2018 - he instead mentioned Senzo Mchunu’s ongoing negotiations with labour to find a balanced solution that sets compensation at an appropriate, affordable and fair level.

THE DEBT TRAP

David Masondo, the Deputy Finance Minister, told reporters on Wednesday that the public debt has now increased to almost R4 trillion. 

"We are trying to balance the public deficit which has grown and which has largely been due to SOEs (state-owned enterprises) and the public sector wage bill. Those drivers have not disappeared," he said.

"Another mechanism is to look at our assets and liabilities. I'm afraid it has become liabilities and liabilities. Many of our SOEs have become serious liabilities."

Masondo is in charge of implementing the Treasury's 2020-25 Strategic Plan, which sets out the priorities and service delivery focus areas for the next five years. 

On SOEs, Treasury Director-General Dondo Mogajane said between now and the Medium-Term Budget Policy Statement later this year, the government would look closely at which SOEs needed to be closed, which should be supported, and which ones should be merged. This approach might mean that bailouts of the past may disappear.

He said The Treasury was currently embarking on an expenditure review – where every function within an organisation is analysed for its needs and costs and this would ultimately help the state reach its target.

SOCIAL SAFETY NET

Another issue the government will have to consider is social grants. New grants were introduced to help the poor, while others were increased. This relief comes to an end in October, however. Some stakeholders are concerned that the economy will not have improved by this time and that these grants will have to remain in place.

Initially the government had set aside an extra R50 billion to increase grants and help those who get no assistance at all. This amount has been reduced to R40 billion. 

Mboweni said the reason for this was that the "uptake for special grants has been slow, but it does not mean we are not committed".

BUSINESS SUPPORT

Another challenge for Government will be SMMEs. While The Treasury has given banks billions of rand to help these businesses, the process has proven to be cumbersome as banks are still using old methods for credit checks, resulting in many of them not qualifying for support or the support taking too long to arrive.

Business has asked to be brought into the process to advise on how to improve the disbursement of aid to SMMEs, which the government has earmarked as key to boosting the economy and creating jobs.

The state has also identified infrastructure development and maintenance to give the economy a shot in the arm. In the Budget, The Treasury says this will include finalising electricity determinations, unbundling Eskom, taking other steps to open energy markets, modernising ports and rail infrastructure, and licensing spectrum.

There will also be a focus on supporting agriculture, tourism and other sectors with high job- creation potential.

Dondo said the SA Revenue Service would be given additional support to ensure that companies do not dodge paying tax.

This period is going to prove difficult for the government. As Mboweni said, ideally loans from international lenders should be used for investment as they must be paid back with interest. But the country at the moment needs to pump it into a “crisis” to cushion the impact of Covid-19 and the lockdown.

The virus is predicted to continue to have an impact on the country for the next 18 to 24 months, which ultimately means the “new normal” the government speaks of may also be semi-permanent.

As we progress further into our country’s response to the coronavirus pandemic, Sabinet would like to remind its userbase that we are here to support you and the work that you do. By facilitating access to up-to-date information related to all sectors of government, we aim to provide a holistic overview of the goings-on of our country and, as such, we will continue to share relevant, unbiased and, most importantly, reputable sources of information with those who need them. 

  • Increase resilience through digitisation

    Increase resilience through digitisation. CENTURION Pretoria, South Africa, 31 March 2021.COVID-19 has presented one of the most formidable challenges to government, businesses, and society. As a result, agile solutions are important to establish sustainability for the future challenges to come

    Read More
  • Make sound legal decisions, informed by the experience of the past.

    Make sound legal decisions, informed by the experience of the past. CENTURION Pretoria, South Africa, 18 March 2021. Those entrusted with rendering justice on any level have a responsibility to ensure that they stay abreast of the latest developments in

    Read More
  • Sabinet African Journals: A powerful, new platform for a fast-growing collection.

    Sabinet African Journals: A powerful, new platform for a fast-growing collection. CENTURION Pretoria, South Africa, 9 March 2021. Sabinet is pleased to announce the migration of Sabinet African Journals (www.journals.co.za) to a new powerful technology platform. With this move to

    Read More
  • With alcohol restrictions on the cards, are South Africans considering going Green?

    With alcohol restrictions on the cards, are South Africans considering going Green? CENTURION Pretoria, South Africa, 1 February 2021. Over the past few months, South African government restrictions regarding the purchase and consumption of alcohol have fluctuated. Alcohol was placed

    Read More
  • Sabinet Judgments — a well-rounded view of reported and unreported - supplemented by an advanced system to enable users to timeously and cost effectively find the information they require.

    Sabinet Judgments — a well-rounded view of reported and unreported judgments - supplemented by an advanced system to enable users to timeously and cost effectively find the information they require. CENTURION Pretoria, South Africa, 18 November 2020. Sabinet, one of the most

    Read More
  • Employment Equity Amendment Bill set to send ripples throughout South Africa’s business sectors (2)

    Employment Equity Amendment Bill set to send ripples throughout South Africa’s business sectors The closing date for comments on the Employment Equity Amendment Bill is set for this Friday, 19 February. The Bill has been greeted with varying degrees of

    Read More
  • New Restaurant Pay Rules

    New Restaurant Pay Rules CENTURION Pretoria, South Africa, 28 January 2021. While the pandemic has brought its fair share of challenges to each one of us, the food services industry has felt its effects more gravely than most. Lockdowns have

    Read More
  • GAUTENG LOOKS TO TOWNSHIPS TO HELP BOOST THE ECONOMY AND CREATE JOBS FOR CITIZENS

    GAUTENG LOOKS TO TOWNSHIPS TO HELP BOOST THE ECONOMY AND CREATE JOBS FOR CITIZENS CENTURION Pretoria, South Africa, 14 October 2020. The Gauteng Provincial Government has released the Gauteng Township Economic Development Bill for public comment — new legislation which aims

    Read More
  • Powered-up publishing with PowerReview

    Powered-up publishing with PowerReview CENTURION Pretoria, South Africa, 8 October 2020. Due to the wide-ranging and far-reaching implications of scientific findings and discoveries, it’s important that some kind of quality control exists to ensure, prior to publication, that the science

    Read More
  • Sabinet: Partnering to improve visibility and accessibility of open content

    Saving costs and moving to the cloud is critical for academic libraries CENTURION Pretoria, South Africa, 5 March 2020.Libraries today are faced with the challenges and pressures of incorporating open content into their collections. The management of these open resources

    Read More
  • Saving costs and moving to the cloud is critical for academic libraries

    Saving costs and moving to the cloud is critical for academic libraries CENTURION Pretoria, South Africa, 25 June 2020.Sabinet supports libraries and institutions across Southern Africa and Africa by helping them migrate to, and effectively use, the WorldShare ILL platform.

    Read More
  • How the Cannabis laws impact your business

    How the Cannabis laws impact your business CENTURION Pretoria, South Africa, 8 September 2020. Whenever laws change, it’s important for business to know what the implications are for them and their industry. Recent changes to the Cannabis and drug policy

    Read More
  • UPDATE: Cannabis Legislation

    UPDATE: Cannabis Legislation CENTURION Pretoria, South Africa, 23 September 2020. The Cannabis for Private Purposes Bill was brought before parliament at the beginning of September. With the deadline of 30 September a week away, it looks like there might be

    Read More
  • Your library’s success hinges on effective resource sharing

    Your library’s success hinges on effective resource sharing CENTURION Pretoria, South Africa, 2 July 2020. The Encyclopaedia of Library and Information Science contains the quote: “the success and survival of big libraries will depend on how much and to what

    Read More
  • Resource sharing is critical to the future of academic libraries

    Resource sharing is critical to the future of academic libraries CENTURION Pretoria, South Africa, 26 June 2020. With the government’s budget speech yesterday bringing the bleak news of widespread cost-cutting, it is those cuts that specifically impact libraries, TVET colleges

    Read More
  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7

Be the first to know!

Want the latest on Sabinet?

SUBSCRIBE TO OUR NEWSLETTER