National Treasury expects job losses, tax losses and a contracting economy due to the Covid-19 coronavirus pandemic and the lockdown enforced to halt its spread.
Treasury and tax officials, who briefed legislators on the potential impact of the virus on Thursday, said that the finance minister would present an adjusted budget that would account for the impact of the pandemic and economic relief measures only next month or even in July.
South Africa’s economy could contract by as much as 16.1% this year, depending on how long it takes to contain the coronavirus pandemic and how much the economy has recovered by the end of this year, Treasury’s estimates show.
“We have to move quickly to get the economy back to normal, but also take into account that we have to contain the impact of the virus,” Treasury director-general Dondo Mogajane said.
Treasury’s scenarios showed that more than 7 million jobs could be shed as a result of the virus and the lockdown, which have brought almost all economic activity in the country to a standstill.
Manufacturing, construction, trade, catering and accommodation, as well as financial and business services, will be the worst affected sectors.
Treasury expected a “substantial” shortfall in revenue from the February 26 budget’s R1.43 trillion tax-collection estimate.
That was due to weakness in the economy and virus-related tax relief measures, Treasury said.
While the forecasts still needed to be updated, the tax take could fall by 32% or more, according to Finance Minister Tito Mboweni.
A ban on the sale of alcohol and tobacco products during the lockdown period had led to an under-recovery of more than R1.5 billion this month alone, said SA Revenue Service commissioner Edward Kieswetter.
The country was counting on accessing R5.07 billion from multilateral lenders and development banks, including the International Monetary Fund, the World Bank and the New Development Bank, to help finance government’s stimulus package.
The tenor for some of these loans would be as long as 35 years, which included a grace period and no conditionality post-disbursement, according to Treasury.
The cost of funding the loans was favourable relative to market pricing because they were not based on country-risk premium, it said.
Treasury’s presentation followed a credit rating downgrade by S&P Global Ratings, which took South Africa’s debt assessments to its lowest level yet.
The downgrade was a “big blow to the country” and underlined the need for structural reforms, Mboweni said. – Bloomberg
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