PRETORIA, SOUTH AFRICA – MARCH 16: Finance Minister Tito Mboweni briefs the media on details of government interventions in several sections of the COVID-19 division records at the DIRCO Media Center.
Photos by Phill Magakoe / Gallo via Getty Images
South African Finance Minister Tito Mboweni will deliver the country’s 2021 budget on Thursday, with the country under growing fiscal pressure following a coronary virus pandemic.
A strong final quarter of 2020 enjoyed the South African economy based on hard-to-date activity data, and the IMF expects a 3% median reversal in real GDP in 2021 after an 8% shortfall last year.
However, the pace of recovery has been hampered by recovery measures that have seen the country eliminate the second wave of Covid-19 cases.
South Africa was eradicated by a new strain of the highly susceptible virus near the end of 2020, and recently delayed the release of the AstraZeneca-Oxford University vaccine amid concerns that it is showing efficacy. limited against that particular type, formally known as the B .1.351 mutation.
On Wednesday, the country’s seven-day average of new daily infections sat at just over 2,000, after reaching 19,000 in mid-January, according to data compiled by Johns Hopkins University.
Figures from Stats USA on Wednesday showed retail sales contracted by 0.8% year-over-year in December, a much smaller-than-expected decline, following a 4% fall in November. Unexpected business output rose 1.8% year-on-year after falling 4.1% in November. Mining and manufacturing climbed annually for a year for the first time since the outbreak began.
Virag Forizs, Emerging Markets Economist at Capital Economics, said the figures show that the South African economy is likely to avoid a double-dip economic recession to expand between 1% and 1.5% per quarter.
‘Harsh fiscal austerity’
However, she suggested that the preventive measures put in place to combat the second wave of the pandemic would reduce activity for the first quarter of 2021, along with ongoing power cuts due to long-term challenges at property convenience. Eskom debt state.
“Looking ahead, we believe the recovery will remain slow. The government’s vaccination campaign is going against major hurdles, electricity problems may never go down anytime soon. demand will continue to be severely controlled, “Forizs said in a note on Wednesday, predicting GDP is likely to remain at around 2% below its pre – viral path by 2022.
While the country appears to be through the second wave and the government has begun easing restrictions since the beginning of February, public finances and the steps taken to bring them back will be the main focus of Thursday’s budget.
A police officer keeps a man on alert while an overnight curfew is re-enacted amid a nationwide coronavirus infection (COVID-19) lockout, in Pretoria, South Africa, 9 January, 2021.
Siphiwe Sibeko | Reuters
South Africa’s Moody’s Ratings group has taken a negative view and has pointed out that it is “more likely” to see another sovereign’s credit rating fall this year, following two declines in 2020.
It also predicts that the country’s debt-to-GDP ratio will hit 100.7% in fiscal year 2021/22, claiming the country’s credit profile is “constrained by fiscal pressures strong, broad-based, with rising borrowing costs and continued low growth. “
Government revenue came in much higher than expected in December, rising 10% year-on-year to South Africa’s 176.4 billion rand ($ 12.1 billion), but fiscal revenue was cumulative for the first three quarters fell 10.1% year-on-year. .
Higher commodity prices and a general rise in global risk sentiment have boosted interest in South African assets, with local authorities hoping that the trend in commodity prices will help cut some budget deficits, according to Pieter du Preez, senior economist at NKC African Economics.
‘Most important’ budget yet
Considering the already brutal state of the economy before the pandemic and events since then, du Preez suggested that Mboweni ‘s budget on Thursday was “still the most important. “
“Fiscal stimulus measures to support the economy amid the Covid-19 pandemic, coupled with the loss of government revenue, have exacerbated the difficulties for the Treasury,” he said. du Preez in a note last week.
He said profitability has risen in the past month as the money laundering government measures a number of tax measures to fill the hole in their 2021/22 budget.
South African Health Minister Zweli Mkhize will receive the Johnson and Johnson coronavirus infection (COVID-19) vaccine at Khayelitsha Hospital near Cape Town, South Africa, February 17, 2021.
Gianluigi Guercia | Amar | Reuters
“One of the crucial costs for the coming fiscal year is the government’s R24bn vaccine distribution program to protect two-thirds of the population – a figure needed to achieve herd protection – by the end of the year. years, “said du Preez.
“Given the latest positive data, we would not expect the Treasury to increase the tax burden on consumers and corporations due to the current climate and the tax burden South Africans already have compared to other emerging market countries. “