While delivering the Medium Term Budget Policy Statement, Finance Minister Tito Mboweni, called on for the implementation of the Economic Reconstruction and Recovery plan, that was tabled two weeks ago by President Matamela Cyril Ramaphosa.
Mboweni highlighted that the June 2020 Special Adjustments Budget was prepared in an environment of extreme uncertainty. However, since then more data has become available. The economy is now expected to contract by 7.8% this year, and the 2021 outlook is more uncertain, he noted, adding that job losses have been particularly severe.
To manage this uncertainty, the finance minister said government has sets out active measures. “We table a five-year fiscal consolidation pathway that promotes economic growth while bringing debt under control. The fiscal measures realign the composition of our spending from consumption towards investment and support efforts to lower the cost of capital.
“Our revised fiscal framework puts us on a course to stabilise the ratio of debtto-GDP at around 95% within the next five years. The stock of gross debt will rise from roughly R4 trillion this year to R5.5 trillion in 2023/24. The medium-term fiscal strategy narrows the main budget primary deficit from an expected R266 billion in 2021/22 to R84 billion in 2023/24 and we achieve a surplus by 2025/26,” said the minister.
He continued: “We propose consolidated spending of R6.2 trillion over the 2021 Medium Term Expenditure Framework, of which R1.2 trillion goes to learning and culture, R978 billion to social development and R724 billion to health.
According to Mboweni, the South African economy is anticipated to grow by 3.3% in 2021, 1.7% in 2022 and 1.5% in 2023. In the same breath, the finance minister said, “a sharp – and hopefully short – global recession is underway. The International Monetary Fund expects global output to contract by 4.4% in 2020, before rebounding to 5.2% in 2021 in their October World Economic Outlook.”
Growth in advanced economies is strengthening, he said. Meanwhile, emerging market countries are expected to grow by 6% by next year. Sub-Saharan Africa is expected to rebound to growth of 3.1% in 2021. As always, Africa has been at the forefront of innovative solutions to the crisis, including delivering social assistance using digital technology, he noted.
South African economic context
Turning to the South African economic context, minister Mboweni said it looks like there will be a strong rebound in the next quarter. These will be supported by government’s Economic Reconstruction and Recovery plan, he said.
Mboweni underlined that improving the supply of electricity is urgent. “In line with our plan, there is progress in allowing municipalities to buy electricity from different sources. In addition, the way has been opened for the procurement of almost 12,000MW of new electricity capacity to be provided by independent power producers. The ongoing implementation of the Eskom Roadmap and unbundling continues. Divisional managing directors and boards of directors have been appointed,” he disclosed.
In addressing the issue of jobs, Mboweni said “We are happy to announce today that we are allocating R12.6 billion in this financial year to the game-changing employment initiatives championed by the President. The Provincial Equitable Share is augmented by R7 billion to support jobs at fee-paying public schools and government-subsidised independent schools. R600 million goes to employ early childhood development and social workers. R2 billion is allocated to Working for Fire, Working for Water and Working for Forests.”
The rest of the allocation from the employment initiative is divided between the transport, arts, sports and culture, health and agricultural sectors. The minister added that the District Development Model will fast-track infrastructure and general socio-economic development. “The revised Division of Revenue for 2020/21 proposes allocations of R806.7 billion to national departments, R628.3 billion to provinces and R139.9 billion to local government. After extensive consultations between the Banking Association, the National Treasury and the South African Reserve Bank, work is underway to review the Loan Guarantee Scheme to improve take-up. I will also be working with my colleagues in the Cabinet to boost business restart efforts,” he said.
Read the full Medium Term Budget Policy Statement.