As speculation mounts in political and business circles about whether Finance Minister Tito Mboweni will revise the 2020/21 budget in light of South Africa’s dramatically altered economic conditions, it has emerged that government has initiated talks to launch a massive infrastructure project to kick-start and boost the economy once the Covid-19 coronavirus pandemic has run its course.
Economists predict that the economy may shrink by between 2% and 7% due to the 21-day lockdown announced by President Cyril Ramaphosa almost two weeks ago, as well as the country’s sovereign credit rating downgrade by ratings agencies Moody’s Investors Service and Fitch Ratings.
Speculation in government circles is that the shrinking economy could increase the official unemployment rate to 50%.
A senior government official with knowledge of the talks said that, although officials at Treasury were preoccupied with dealing with Covid-19, they were already thinking about how to resuscitate the economy once the deadly virus was gone.
The official said Treasury would also be forced to review the budget presented by Mboweni in February.
“We are in a different world now. All the budgetary assumptions we had made are out of the window. All the figures, projections and scenarios we had referred to are irrelevant. The question is how soon we can present a new budget to the nation.
Maybe not necessarily an entirely new budget, but a significant review of the initial budget is inevitable. We have no choice; the world has changed dramatically. We may have to cut the budget by more than R260 billion. We may be forced to not increase wages above inflation. What I am saying is that we have to go back to the drawing board.”
It was a “great opportunity for us to reboot our economy”, he said, adding that Ramaphosa had gained political capital and had been emboldened by his handling of the coronavirus outbreak.
A former Treasury bureaucrat said government “will definitely have to look at the budget again, as well as all the numbers they have tabled. There will be no economic activity in the first quarter of this year.
As such, there will be massive under-collection by the SA Revenue Service [Sars]. There is a correlation between economic activity and revenue collection. There will be subdued economic activity in the next three months and we will have a deep recession.”
The official said: “Government is looking into a massive infrastructure spend programme … to get us out of the current situation. The only way to kick-start the economy is through an infrastructure programme [of] not less than R2 trillion. There is really no way we will be able to get out of this fallout without [this].
With unemployment set to rise to about 50%, [such an] infrastructure programme will draw a lot of people into employment. Granted, some of the jobs will be temporary, but it they will be jobs nevertheless.”
While details about the infrastructure programme are sketchy at the moment, the official said the multitrillion-rand scheme, which could last for between three and five years, would incorporate projects on energy, transport and logistics, rail, education, housing, health, dams, and roads.
Government, the official said, would consider various funding models, including borrowing money from the Public Invest Corporation, the International Monetary Fund, the Development Bank of Southern Africa and the New Development Bank.
Funding from asset managers and other private lenders would also be considered, he said, adding that, while the economy would be battered in the short term, the reconstruction afterwards would offer Treasury an opportunity to implement drastic reforms in the economy.
As the economy declined, unemployment levels would increase dramatically and, as companies retrenched, the country’s tax base would shrink and the deficit on the budget would rise, he said, adding that the implications for government were big.
“The question is, what are we doing? We are introducing the structural reforms we spoke about. We are reorganising ourselves as a government. We are talking about actions that must be taken immediately after Covid-19.”
Early this week, Sars commissioner Edward Kieswetter reported that the agency had collected R1.356 trillion in taxes last year. This was R66.2 billion short of the projected R1.42 trillion.
The official said he had also heard that Treasury and Ramaphosa’s infrastructure investment office, headed by former Tshwane mayor Kgosientso Ramokgopa, were working on an infrastructure plan that would be announced in due course.