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WRAP | As Covid-19 wreaks havoc on public finances, Mboweni vows govt will stabilise debt

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24 June 17:34

Key takeaways from Mboweni's address :  

*The consolidated budget deficit will rise to R761.7 billion, or 15.7 per cent of GDP in 2020/21.

*SA will also miss its tax revenue target (included in the February Budget) by some R300 billion.

*Treasury is projecting that gross national debt will be close to R4 trillion, or 81.8 per cent of GDP, by the end of the fiscal year.

*Mboweni said that government would choose the more difficult "narrow path" to shrink the deficit and stabilise debt at 87.4 percent of GDP in 2023/24.

*Remaining passive, he said, would open the path to bankruptcy, and a sovereign debt crisis.

*Cabinet has adopted a target of a primary surplus by 2023/24.

*SA has approached international finance institutions to borrow $7 billion. Of this, SA has received $1 billion in funding from the New Development Bank.

*SA will start using zero-based budgeting in future in light of the "new realities" the country is facing.

*The minister did not provide an update in whether the government would consider further loans to SAA, saying this was the domain of the department of public enterprises.

*The state will put aside R100 billion to create jobs, part of a "multi-year, comprehensive response to our jobs emergency". 

Fin24 Budget Hub

24 June 17:13

"You know, I haven't had much sleep," says Mboweni. "Permission to depart". 

With that the briefing comes to an end. 

24 June 17:11

The director-general adds that the only long-term solution lies in growing the economy. 

24 June 17:09

Mogajane says zero-based budgeting is necessary in light of the "new realities" that SA faces. 

24 June 17:08

Mogajane notes the Land Bank could not be allowed to collapse, which is why Cabinet agreed to support it to the tune of R3 billion "recognising the important role of food security". 

24 June 17:06

Director-General of National Treasury, Dondo Mogajane, notes that SA also faced a downgrade by rating agency Moody's in March.  
Moody's cuts South Africa's credit rating to junk

24 June 17:01

Mboweni says SA has to work hard that by 2023/24 the debt-to GDP ratio is not greater than the GDP of the country, which would trigger "one form of a sovereign debt crisis or another".

 

24 June 16:58

Mboweni says the country would never undermine sovereignty, adds there is "no lender that will just throw money at you". 

SA needs to give commitments about how funds will be repaid, he says, adds this is normal and to be expected. 

24 June 16:56

The finance minister says that, as SA enters into funding arrangements with global lenders, the "critical issue" is that nothing is done to undermine national sovereignty. 

24 June 16:53

Mboweni is again asked about approaching the IMF, in light of some statements by members of the ANC ruling alliance that the country should not do so. 

"The truth of the matter is that the ANC-leadership supports this," he says. 

24 June 16:48

SARS Commissioner Edward Kieswetter notes general tax compliance standards have been slipping. 

He says a unit has been established to focus on the complex tax arrangements of the superrich. 

Earlier Mboweni announced that tax revenues for 2020 would likely be short R300 billion, due to the economic shock of Covid-19. 

 

24 June 16:45

It looks like the minister will not be answering further questions about SAA, says questions should be directed to the department of public enterprises. 

24 June 16:44

Mboweni says the supplementary budget was not introduced to "take over the functions of the department of public enterprises," in relation to a question about further bailouts for debt-laden flag carrier SAA. 

24 June 16:31

Mboweni says there is certainly capacity to implement zero-based budgeting in the future, talks about bringing technocrats into the picture at an early stage of crafting budgets. 

24 June 16:27

Masondo notes that record unemployment data released on Tuesday - that saw the jobless rate grow to 30.1% - came before the full impact of Covid-19 as factored in. 

"Covid has just worsened all the problems we articulated in February," he reiterates. 

24 June 16:25

Masondo says the public deficit has grown, in part, due to "wasteful expenditure". 

He says many of SA's state-owned enterprises are becoming serious liabilities to the government, notes that a Presidential SOE Council will be looking into state intervention in state-run companies. 

24 June 16:23

Deputy Finance Minister David Masondo notes that total public debt - already a problem earlier in the year - has increased to almost R4 trillion.

Covid-19 has worsened the situation, he says. 

24 June 16:21

Mboweni now answers a question about the public sector wage bill, says negotiations are taking place been the minister for the public service and administration, and unions. 

"Our overall objective is for a compensation system that is fair, transparent and fiscally affordable," he says. 

24 June 16:16

Mboweni says the focus of Wednesday's address was the revised fiscal framework. 

He said for this reason he didn't "get drawn into" things like embattled national airline SAA ,but notes he did provide an update on the Landbank. 

24 June 16:08

Mboweni is answering the first question about loans. He says far only the New Development Bank has decided to loan the country $1 billion. 

The says the IMF and Treasury have been involved in "protracted" and "tough" negotiations and may have reached an understanding on a loan of $4.2 billion. 

He says staff at the IMF will approach their executive board in early July to make the submission on SA's request. He says he thinks the World Bank will follow suit once the IMF agrees to the loan. 

He notes these borrowings would have to be repaid with interest.

24 June 16:00

The panel for the media bringing includes 

*Finance Minister Tito Mboweni

*SARS commissioner Edward Kieswetter 

*Deputy Finance Minister David Masondo

*The Director-General of National Treasury, Dondo Mogajane; and 

*Reserve Bank Governor Lesetja Kganyago

24 June 15:55

The minister's post-budget media briefing is expected to start soon. 

24 June 15:52

Visit Fin24's central hub below for everything related to the revised budget. 
https://www.news24.com/fin24/budget

24 June 15:51

A key point in Mboweni's address was the announcement that SA's economy is predicted to contract by 7.2% this year. 

Fin24 reporter Lameez Omarjee puts the statement in context. 

SA economy to contract to worst level in 90 years

24 June 15:48

With the budget speech done, Mboweni is now expected to host a media briefing. 

24 June 15:41

Mboweni does a round of thanks, and with that his address is finished. 

24 June 15:40

Mboweni seems to be nearing the end of his address, he notes that infrastructure will be "the fly wheel by which we grow the economy," and refers to the presidential infrastructure summit that took place on Tuesday. 

24 June 15:39

Speaking of the public sector wage bill, Mboweni says that half of all consolidated revenue will go towards the compensation of workers in the public.

"We value the important work public servants do.   Minister Senzo Mchunu is negotiating with our partners in the labour movement to find a balanced solution that sets compensation at an appropriate, affordable and fair level," he says without adding further detail.

"We wish him well."

24 June 15:37

Mboweni says the principle of zero-based budgeting is that we must see "demonstrable value for money":

"Eskom will need to show progress in meeting the milestones as laid down in the Roadmap. This is non-negotiable," he says.  

24 June 15:36

Mboweni says that the government will be allocating R3 billion to recapitalise the Land Bank. 

24 June 15:35

"Cabinet, under the leadership and guidance of the President, has found the narrow gate. Government shall go through it.  Government will narrow the deficit and stabilise debt at 87.4 percent of GDP in 2023/24. Cabinet has also adopted a target of a primary surplus by 2023/24," he says.  

24 June 15:32

Mboweni again warns about debt service costs. 

"The wide gate opens to a path of bankruptcy," he says, warns of a sovereign debt crisis - like German in the 1920s, or Zimbabwe and Greece more recently. 

24 June 15:30

"Even as South Africa responds to the current health and economic crisis, a fiscal reckoning looms. The public finances are dangerously overstretched. The wide gate is a passive country that lets circumstances overwhelm it.   10 2020 Supplementary Budget Speech If we remain passive, economic growth will stagnate."

24 June 15:30

Mboweni is fond of quoting scripture, and now he does so again. 

The gospel according to the Apostle Matthew, chapter 7 verses 13 and 14 :

"Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it. But small is the gate and narrow the road that leads to life, and only a few find it."

SA if faced with a choice between these two gates, he says 

24 June 15:29

Speaking of the loan guarantee scheme, where the state guaranteed up to R200 billion in bank loans to businesses, Mboweni says that after a slow start it has been picking up steam.

"In its first month, the scheme lent over R10 billion. Many more applications are being processed, and lending is expected to rise significantly."   

24 June 15:27

He says National Treasury will "monitor the spending through monthly and quarterly reports". 

24 June 15:27

Mbweni now gives overall figures 

*the national share for 2020/21 increases from R758 billion to R790 billion,

*the provincial share decreases from R649 billion to R645 billion; and

* the local government share increases from R133 billion to R140 billion.

"Local government is at the heart of our response to the pandemic. Accordingly, an additional R11 billion is allocated to local government through the equitable share. A further R9 billion will be reprioritised within allocated conditional grants to fund additional water and sanitation provision and the sanitisation of public transport," he says. 

24 June 15:25

Mboweni notes that the Unemployment Insurance Fund has provided R23 billion in COVID-19 relief to over 4.7 million workers affected by the pandemic.  

24 June 15:25

Mboweni says the state is putting aside R100 billion to create jobs. 

This will be a "multi-year, comprehensive response to our jobs emergency".  

"The President’s job creation and protection initiative will be rolled out over the medium-term. It will include a repurposed public employment programme and a Presidential Youth Employment Intervention.

"In this year, an amount of R6.1bn is already allocated, and a further R19.6 billion has been set aside mainly for this purpose."

24 June 15:24

The finance minister says that, to support vulnerable households an additional allocation of R25.5 billion to the Social Development department is proposed, for a total relief package of R41 billion.

"All these measures will come to an end in October," he adds. 

24 June 15:23

"We have successfully increased our COVID-19 bed capacity to above 27 000; identified 400 quarantine sites with a capacity of around 36 000 beds across the country and deployed nearly 50 000 community health care workers to screen millions of South Africans.  We have tested over 1.3 million people."  

24 June 15:23

"The Supplementary Budget proposes R21.5 billion for COVID-19-related health care spending. It also proposes a further allocation of R12.6 billion to services at the frontline of our response to the pandemic," says Mboweni. 

"Allocations have been informed by epidemiological modelling, a national health sector COVID-19 cost model and our experiences over the past 100 days." 

24 June 15:22

Mboweni says that the country needs to access new sources of funding.

"Government intends to borrow about US$7 billion from international finance institutions to support the pandemic response," he says without providing additional details. 

24 June 15:21

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

24 June 15:21

"This is compared to the deficit of R370.5 billion, or 6.8 per cent 2020 Supplementary Budget Speech 7 of GDP projected in February.

"This increase is mainly due to the revised revenue projections and pay-outs from the Unemployment Insurance Fund. The narrower measure, known as the main budget deficit, is projected to be 14.6 per cent of GDP."

24 June 15:20

The minister says that the consolidated budget deficit will rise to R761.7 billion, or 15.7 per cent of GDP in 2020/21.

24 June 15:19

Speaking about the revised fiscal framework, Mboweni says that total consolidated budget spending, including debt service costs, will exceed R2 trillion for the first time ever.  

He says SA will also miss its tax target by R300 billion. 

"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, grosstax revenue for the 2020/21 fiscal year isrevised 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."  

24 June 15:17

Mboweni says SA has responded to the Covid-19 economic shock "with an unprecedented set of measures".  

"Never before has government worked together so closely with the private sector, labour, community and the central bank. Standing as a united people, it is clear we can achieve anything. Government’s COVID-19 economic support package directs R500 billion straight at the problem."

The minister continues to outline measures taken so far by the private and public sector to bolster the economy. 

24 June 15:16

The minister says SA's economy is now expected to contract by 7.2 per cent in 2020.

24 June 15:14

The minister is now outlining the global economic impact of the coronavirus. 

"In the February Budget, we expected that the global economy would expand by 3.3 per cent in 2020. We now expect a global contraction of 5.2 per cent this year." 

"This will bring about the broadest collapse in per capita incomes since 1870. Throughout the world, tens of millions of workers have lost their jobs. South African unemployment increased by one percentage point, reaching 30.1 per cent in the first three months of this year."

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