SA economy to see ‘largest contraction in 90 years, debt now its weakness’

Finance Minister Tito Mboweni has presented his supplementary Budget, comparing debt to a hippo's mouth.

Finance Minister Tito Mboweni delivering his Supplementary Budget on 24 June 2020. Picture: GCIS

JOHANNESBURG/CAPE TOWN- Finance Minister Tito Mboweni said the country had generated far too much debt and that was the country's weakness.

He has presented his supplementary Budget, comparing debt to a hippo's mouth: “This hippo is eating our children’s inheritance and we will do all that we can to close its mouth. This is our Herculean task.”

Mboweni said the country had been hit hard with unemployment sitting at 30.1% and growth expected to contract.

“South African unemployment increased by one percentage point, reaching 30.1% in the first three months of this year. The South African economy is now expected to contract by 7.2% in 2020. This is the largest contraction in nearly 90 years. Inflation will likely register 3% in 2020, in line with the outcome of this morning.”

Mboweni said government would seek to borrow around $7 billion.

That will see the budget deficit widen to 14.6% compared to the 6.8% forecast in his February budget.

And national debt will be massive: “Our early projection is that gross national debt will be close to R4 trillion, or 81.8% of GDP by the end of this fiscal year. This is compared to an estimate of R3.56 trillion or 65.6% of GDP projected in February.”

This is because tax revenue is down: “Gross tax revenue collected during the first two months of 2020/21 was R142 billion, compared to our initial forecast for the same period of R177.3 billion. Put another way – we are already R35.3 billion behind on our 2020/21 target. As a consequence, gross tax revenue for the 2020/21 fiscal year revised down from R1.43 trillion to R1.12 trillion. That means that we expect to miss our tax target for this year by over R300 billion.”

And spending is very high: “Honourable members, projected total consolidated Budget spending, including debt service costs, will exceed R2 trillion for the first time ever.”

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