The Covid-19 pandemic will leave South Africa with a budget deficit of 15.7 percent of gross domestic product (GDP) in the current financial year, Finance Minister Tito Mboweni said.
Parliament – The Covid-19 pandemic will leave South Africa with a budget deficit of 15.7 percent of gross domestic product (GDP) in the current financial year, along with a revenue shortfall of R300 billion (US$17.2 billion) and a bigger debt burden, Finance Minister Tito Mboweni said on Wednesday as he tabled an adjustment budget.
The historic budget, the first of its kind tabled in South Africa, revises spending to account for the emergency steps taken by the state to combat the virus and counter its economic impact.
“Taken together the measures and adjustments we present translate into 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 percent of GDP projected in February,” he said in a virtual address to the National Assembly.
Revenue collection was forecast to go down from R1.43 trillion to R1.12 trillion in 2020/21.
“That means that we expect to miss our tax target for this year by over R300 billion,” the minister said.
Mboweni stressed that South Africa’s worst economic risk was its rising debt levels, and said these were driven further north by the global health crisis. This was evidenced by the fact that total consolidated budget spending, including debt service costs, would for the first time ever exceed R2 trillion.
He said this placed an unconscionable burden on future generation and had to be addressed as a priority.
“Debt is our weakness. We have accumulated far too much debt; this downturn will add more,” he said.
Out of every tax rand, 21 cents would now go towards servicing debt.
“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,” Mboweni said.
“So today, with an eye on the future, we set out a strategy to build a bridge to recovery. Our Herculean task is to close the mouth of the Hippopotamus!
It is eating our children’s inheritance. We need to stop it now!”