By Ashok Ramsarup :: South Africa’s debt crisis is escalating and expected to reach four trillion rand in 2020/21 since the coronavirus pandemic had taken the world by storm and the corruption that engulfed the country.
In presenting the Medium-Term Policy Statement (MTBPS) in Cape Town, Finance Minister Tito Mboweni Madam announced several rescue plans, including: –
* the allocation of three billion Rand as it required an additional seven billion Rand over the medium-term to support its restructuring.
* R10.5 billion allocated to SAA to implement its business rescue plan. This allocation was funded through reductions to the baselines of national departments, public entities and conditional grants. This allocation was in addition to the R16.4 billion allocated over the 2020 Medium-Term Expenditure Framework (MTEF) earlier this year for settling guaranteed debt and interest.
Mboweni announced that the government cannot allow the recent fiscal weakness and the pandemic to turn into a sovereign debt crisis. He said the government would propose a five-year fiscal consolidation plan to support the economy and create jobs.
“Since June, more data has become available. The economy is now expected to contract by 7.8 per cent this year, and the 2021 outlook is more uncertain. Job losses have been particularly severe, Mboweni told parliament.
He said: “We table a five-year fiscal consolidation pathway that promotes economic growth while bringing debt under control. These fiscal measures realign the composition of the 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 debt- to-GDP at around 95 per cent 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 ultimately achieve a surplus by 2025/26,” Mboweni stated.
The government proposed to consolidate 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.
Mboweni hoped the South African economy to grow by 3.3 per cent in 2021,1.7 per cent in 2022 and 1.5 per cent in 2023.
On the question of housing, Mboweni said subsidies of R2.2 billion would be set aside for the Social Housing Programme aimed at poor, working South Africans. A further 6.7 billion has been contractually committed to the housing programme translated to a total investment of R20 billion over the next 10 years.
The statement said financial support for cash strapped Eskom was reduced by R4.2 billion over the medium term. Mboweni said the way had been opened for the procurement of almost 12 000 MW of new electricity capacity to be provided by independent power producers.
The Minister also gave updates on the fiscal relief package. In April this year, government announced a major fiscal relief package of around R500 billion or 10 percent of GDP, including:
* More than R30 billion for health and other frontline services
* Support vulnerable households which is now in excess of R50 billion
* More than R40 billion for wage protection through the UIF
* Around R100 billion for job creation initiatives, which will now be spread over the MTEF
* R200 billion for a credit guarantee scheme
* R20 billion towards municipalities to assist them with COVID-19 related activities
* R70 billion towards emergency tax measures
Mboweni said the Cabinet remained resolute and will walk through the narrow gate towards fiscal sustainability. “Before today, the economy languished in a trap of paralysis. The final part of our duties as captains through the storm is to strengthen the ship.
On the COVID-19 pandemic, Mboweni said it had given rise to shameful and exploitative acts of corruption, adding that it had overshadowed the collective achievements in saving lives and supporting livelihoods.
“It is not true that the R500 billion relief package has been entirely lost to corruption. As pointed out, it is being used to cushion the impact of the pandemic and aspects will continue to be rolled out over the medium term, particularly the Presidential Employment Programmes.
“We must continue to defeat the corrupt and close the loopholes. Efforts to support a rapid response to COVID-19 underline the need for comprehensive procurement reforms,” Minister Mboweni added.