The government is determined to come up with a realistic revised budget and implement key reforms needed for the economy to recover from the coronavirus-induced slump, the director-general of the Treasury, Dondo Mogajane, said.
"It’s important that we look at our priorities and ask ourselves as a country are we spending money in the right areas, or are there things that we don’t need to do now," he told Business Day after a briefing by finance minister Tito Mboweni on Friday.
The media conference followed the announcement of a R500bn economic and social support package by President Cyril Ramaphosa three days earlier. The plan would not prevent a sharp contraction in GDP, ratings agency Moody’s Investors Service said. It expects the government’s budget deficit to balloon to more than 13% in the current fiscal year.
Moody’s, which downgraded SA to junk status on the day the lockdown began on March 27, said late on Friday that it now forecasts that government debt as a percentage of GDP would rise 15 percentage points to 84% by the end of fiscal 2020 as the economy contracted 6.5%.
Additional expenditure to mitigate the effect of the coronavirus, alongside the hit to the economy that will reduce tax collections, will add to the state’s debt and funding needs, Mogajane said.
Borrowing costs
That comes at a time when SA’s downgrade has increased its borrowing costs, with yields on 10-year bonds reaching records close to 13% before the Reserve Bank intervened. The yield on the R2030 bond was at 10.93% on Friday, from a 2020 low of 8.68% in February.
Mogajane was reluctant to provide details on the additional amount the government will need to raise or the wider implications for the fiscus until an adjusted budget is announced. The exact date is unclear, with Mboweni saying on Friday only that a revised budget bill will be tabled in parliament "shortly".
About R130bn of the rescue package announced by Ramaphosa will come from the reprioritisation of the existing budget. About R200bn will come in the form of a loan guarantee scheme in partnership with the central bank and commercial lenders. It will not come as a direct cost to the fiscus but will add to the government’s contingent liabilities.
A package of R70bn in tax relief measures is also included, but only about R26bn of this will amount to actual forgone revenues.
The state has said that it is likely to borrow about R95bn from multilateral agencies including the International Monetary Fund and the New Development Bank to fund the response to Covid-19, money it can secure at much cheaper rates than in capital markets.
The remainder will have to come from other sources, such as the domestic capital market.
Mogajane was confident that the government will be able to raise the money, though this would be expensive.
"We are going to have to be smart as we raise money," he said. "We cannot not look for cheap money out there."
SA’s debt position is not yet "unsustainable", Mogajane said, adding that SA is not a country "that has been destroyed by Covid-19 and has no potential to bounce back".
While SA is still able to service its debt, it would have to "fight hard" to exit junk and needed to ensure that reforms were implemented, he said.
"Let’s rally around each other quickly to rebuild SA, to make sure that we push for growth. And stop dilly-dallying about things we should be doing to boost growth," he said.
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