That was the measure of hope. But the overall message was a grim one on Day 90 of the Covid-19 lockdown, one of the world’s hardest and longest.
Debt, said Finance Minister Tito Mboweni, was South Africa’s 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.”
Debt service cost has become the fastest-growing item – to R229.3-billion in 2020, according to February’s Budget, up from R201.2-billion un 2019 and R184-billion in 2018
And later, in his 40-minute address, Mboweni reminded South Africa’s debt is already costing much – to date the country spent on debt service costs as much as on Health.
“Eventually the gains of the democratic era would be lost. The wide gate opens to a path of bankruptcy. A sovereign debt crisis is when a country can no longer pay back the interest or principal on its borrowings. We are still some way from that. But if we do not act now, we will shortly get there.”
And that action includes, from July, unprecedented zero-based budgeting, or the process of starting off at a zero allocation with all finances having to be justified and approved in each new period.
Zero-based budgeting was described as the “narrow gate” government would go through as part of the economic recovery road map. It would stabilise the debt at 87.4% of GDP by 2024 and narrow the deficit
Invoking the image of a hippo’s wide-open jaws – to symbolise the gap between income and expenditure – the finance minister said that closing this gap was the Herculean task South Africa faced.
“We have come to the crossroads and have to confront the problems head-on.”
The numbers were not good.
Just four months after the February 2020 Budget that forecast a 0.9% growth, now amid the Covid-19 lockdown, the economy is expected to contract by 7.2 per cent in 2020. The finance minister described it as the largest contraction in nearly 90 years.
Budget deficit rises to 15.7% of GDP in the 2020/21 financial year – almost double the 6.8% expected in the February Budget – or R761.7 billion.
Debt is anticipated to rise to R4-trillion, or 81.8% of GDP.
That tax collection would fall short by some R285-billion emerged in early May when South African Revenue Service (Sars) Commissioner Edward Kieswetter briefed MPs. Last Thursday President Cyril Ramaphosa confirmed the deep hole in the public purse, talking of a tax collection shortfall of R300-billion during his parliamentary Q&A.
Mboweni confirmed this wide revenue gap on Wednesday.
This grim financial position means South Africa would have to borrow $7-billion from international finance institutions, according to Mboweni, who warned:
“We must make no mistake, these are still borrowings. They are not a source of revenue. They must be paid back”.
But without such external support, there would be no scope for investment or other measures to sustain South Africa.
And Mboweni put more precise numbers to the newly adjusted Budget, to cost items outlined in late April when President Cyril Ramaphosa announced a R500-billion stimulus package to restart the economy devastated by the hard Covid-19 lockdown.
Health will get R21.5-billion for Covid-19 spending, and a further R12.6-billion to frontline services, from modelling to screening.
Provinces get another R5-billion for catch-up programmes as schools are closed for at least three months now.
Another R19.6-billion will go to the Presidential Youth Employment Intervention, which earlier this year had already been allocated R6.1-billion.
The Land Bank, however, got R3-billion. That’s because, like Eskom, the Land Bank was “too important to fail”, as Mboweni put it.
(There was no word on SAA, but then the creditors’ meeting to vote on the business rescue plan only is on Thursday. If the creditors don’t back the plan, SAA faces liquidation.)
And for Eskom, Mboweni cautioned it needed “to show progress in meeting the milestones as laid down in the roadmap” to unbundle into three entities – transmission, distribution and generation. That was non-negotiable, the finance minister said.
A progress report on other reforms – and further updates – would come in October’s Medium-Term Budget Policy Statement (MTBPS).
A sober Mboweni, dressed in blue, talked of much work that would have to be put in on this roadmap of economic recovery.
“We reduce our reliance on borrowing. We feed the hungry. We look after the sick. We educate our people. We build for the future. We spend with wisdom, and we jail those who loot.” DM