The projected deficit was high, at R370bn – and the debt-to-GDP ratio was projected to grow to 65%. Optimistic projections of income were made. A growth rate of approximately 1% was predicted.
A week later, South Africa had its first Covid-19 case, and a month later, the country went into Level 5 lockdown, which effectively closed down the economy.
As a result, certain sectors of the economy have still not been able to recommence any operations, while others have only been able to recommence to a limited extent. Emergency funds have had to be found and additional borrowings sought to support relief measures. These factors have resulted in the need to adjust the figures previously tabled in the February Budget Speech.
The difficulties faced by Mboweni are now immeasurably greater. Ways must be found to fund the steep rise in healthcare spending. With South Africa still firmly on the upward curve of Covid-19, there will be large increases in healthcare costs. Social grant spending will show steep increases as the unemployment rate soars even higher.
The impact will be all the greater, given that tax collections are steeply down. Some of the reasons are that:
The effect of the lockdown on the economy, and some of its strange regulations, has set the economy back by some years. Estimates of the projected recovery period vary, but it is likely to take a minimum of three to five years, and possibly longer, for South Africa to dig ourselves out of the hole.
The extent of the contraction of the economy is unknown but, best case estimates put it at around 5%, with other projections at around 16%.
South African Revenue Service Commissioner Edward Kieswetter recently estimated the shortfall in collections at around R285bn. When this shortfall is aggregated with the additional spending in previously announced relief measures, further healthcare costs associated with Covid-19 and possible further relief measures, it is clear that the impact on the economy will be severe. The ratings downgrade, announced the day after SA’s national lockdown commenced on 27 March, is a further setback.
At present the infection rate in the Western Cape is steeply on the rise, with other provinces following on a lower trajectory. While having it may be good to allow for healthcare services to move resources around the country to where they are needed, having the virus rotate around the country lengthens the period for which South Africa is likely to be in lockdown with closed borders.