The unusualness of Finance Minister Tito Mboweni’s second budget of the year can be seen in him delivering his speech from a government briefing room in Pretoria, and not from a parliamentary chamber in Cape Town where he would be playing to the crowd.
This time there wasn’t just no crowd to play to, standing in front of a podium with white panelling at his back gave the impression he was speaking under duress from some undisclosed bunker.
Judging from the dire position of the country’s finances as a result of the global Covid-19 crisis, a bunker would almost be an ideal place to give his speech.
“The South African economy is now expected to contract by 7.2% in 2020,” he said. “This is the largest contraction in nearly 90 years.”
The outlook for the next three is not expected to get any better either: GDP is forecast not to breach 3% for this period.
Already, the economic slowdown can be seen in sharp falls in electricity usage – down 30% year-on-year in April – and business confidence near historic lows.
The weak economy has already knocked tax revenue, resulting in Treasury expecting to miss its tax target for this year by over R300 billion.
The scale of the falloff in tax collection, as well as the rise in unemployment and wage cuts, can be seen in pay-as-you-earn (PAYE) tax revenue falling from R47 billion in March to about R37 billion in May.
There is a similar story with Vat, which fell from R38 billion in January to just under R24 billion in May.
The sharp decline in tax collection will see public debt as a percentage of GDP hit 81% for the 2020/21 period. If not actively managed, this debt could reach 97.2% in 2022/23.
Not all of the R300 billion tax shortfall is a result of a reduction in collections.
“Part of this revision is because the measures announced earlier this year give taxpayers outright relief of R26 billion and delays in tax collection of approximately R44 billion,” said Mboweni.
As bad as things are, Mboweni warned that they could actually get worse.
Like in February, he once again said that if SA does not get its debt under control, it is on the path to ending up having a sovereign debt crisis like pre-World War II Germany or more recently, Argentina and Greece.
“The wide gate opens to a path of bankruptcy. A sovereign debt crisis is when a country can no longer pay back the interest or principal on its borrowings. We are still some way from that. But if we do not act now, we will shortly get there.”
This could result in interest rates and inflation skyrocketing, see a drop in spending, and affect the country in severe and even peculiar ways.
“Argentina had its ships attached. Greek civil servants and pensioners had their salaries and pensions slashed.”
He cautioned in a media briefing after the speech that there is no easy way around the difficulties SA has to face and that not even the $7 billion (about R121.5 billion) loans from the likes of the International Monetary Fund (IMF) and the World Bank will solve its problems.
Firstly, it still hasn’t gotten the funding.
So far, the Brics-backed New Development Bank has provided a $1 billion loan. Getting the buy-in from the IMF has not been so easy. Mboweni says the negotiations for a $4.2 billion loan have been “protracted”, “tough” and “difficult”. While an agreement was reached in principle, the IMF’s executive board still needs to approve it.
He expects the World Bank and the African Development Bank to provide funding.
But even if it gets funding, this will not solve SA’s issues because they are loans, which ultimately means they have to be paid back.