Sovereign debt crisis looms for South Africa without spending cuts - Finance Minister Tito Mboweni
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Finance Minister Tito Mboweni presented his supplementary budget speech today with a warning that South Africa was facing a fiscal reckoning. The South African economy is expecting to contract by at least 7.2 per cent in 2020, which is the largest contraction in nearly 90 years. The emerging fiscal framework for 2020 includes:
- Projected total consolidated budget spending, including debt service costs that will exceed R2 trillion for the first time ever.
- Gross tax revenue collection to fall from R1.43 trillion to R1.12 trillion. It means missing the tax collection target for this year by over R300 billion.
- A consolidated budget deficit of R761.7 billion, or 15.7 per cent of GDP in 2020/21. This is compared to the deficit of R370.5 billion, or 6.8 per cent
of GDP projected in February.
Changes to the division of revenue announced by Minister Mboweni:
- National share for 2020/21 increases from R758 billion to R790 billion, the provincial share decreases from R649 billion to R645 billion and the local government share increases from R133 billion to R140 billion. Increases in local government spending is to counter the Covid-19 pandemic.
The Minister warned that if South Africa remained passive, economic growth would stagnate, debt would spiral upwards and debt‐service costs will crowd out public spending on education and other policy priorities. "The gains of the democratic era would be lost." Mr Mboweni said he firmly rejects that path and the Government will adopt a policy debt stabilisation through zero-based budgeting. The aim is to stabilise debt and narrow the deficit and stabilise debt at 87.4 percent of GDP in 2023/24.
- Projected total consolidated budget spending, including debt service costs that will exceed R2 trillion for the first time ever.
- Gross tax revenue collection to fall from R1.43 trillion to R1.12 trillion. It means missing the tax collection target for this year by over R300 billion.
- A consolidated budget deficit of R761.7 billion, or 15.7 per cent of GDP in 2020/21. This is compared to the deficit of R370.5 billion, or 6.8 per cent
of GDP projected in February.
Changes to the division of revenue announced by Minister Mboweni:
- National share for 2020/21 increases from R758 billion to R790 billion, the provincial share decreases from R649 billion to R645 billion and the local government share increases from R133 billion to R140 billion. Increases in local government spending is to counter the Covid-19 pandemic.
The Minister warned that if South Africa remained passive, economic growth would stagnate, debt would spiral upwards and debt‐service costs will crowd out public spending on education and other policy priorities. "The gains of the democratic era would be lost." Mr Mboweni said he firmly rejects that path and the Government will adopt a policy debt stabilisation through zero-based budgeting. The aim is to stabilise debt and narrow the deficit and stabilise debt at 87.4 percent of GDP in 2023/24.
