South Africa’s National Treasury expects job losses, tax losses and a contracting economy due to the coronavirus pandemic and the lockdown to halt its spread.
The finance minister will only present an adjustment budget, which accounts for the impact of the pandemic and economic relief measures, in June or July, according to Treasury and tax officials who briefed lawmakers on the potential impact of the virus on Thursday.
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 for the economy to recover to the end of 2020, Treasury estimates showed.
“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,” Dondo Mogajane, the National Treasury’s director-general, said.
Treasury’s scenarios showed that more than 7 million jobs could be shed as a result of the virus and lockdown that has brought almost all economic activity to a standstill. Manufacturing, construction, trade, catering and accommodation, as well as financial and business services will be the worst-affected sectors.
The Treasury expected a “substantial” shortfall in revenue from the 1.43 trillion tax-collection estimate in the February 26 budget. That’s due to weakness in the economy and virus-related tax relief measures, the Treasury said.
While the forecasts still need 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 has already led to an under-recovery of more than 1.5 billion rand last month alone, said Edward Kieswetter, the commissioner of the South African Revenue Service.
The country is counting on accessing $5.07 billion from multilateral lenders and development banks including the International Monetary Fund, World Bank and New Development Bank to help finance the government’s stimulus package.
The tenor for some of these loans would be as long as 35 years, which includes a grace period and no conditionality post-disbursement, according to the Treasury. The cost of funding the loans is favorable relative to market pricing because they are not based on country-risk premium, the Treasury said.
The Treasury’s presentation followed a credit rating downgrade by S&P Global Ratings, which took South Africa’s debt assessments to lowest levels yet.
The downgrade is “big blow to the country” and underlined the need for structural reforms, Mboweni said.