Tito Mboweni said the deficit will widen to 761.7bn rand (£35.24bn), representing 15% of GDP, from the 370.5bn rand (£17.14bn – 6.8% of GDP) projected in the February budget – mainly due to a sharp fall in revenue and increase in unemployment insurance payments.
In the first two months of the financial year, the government had already taken 35.3bn rand (£1.63bn) less revenue than its target, and now expects to miss its year target by 300bn rand (£13.88bn).
The South African economy was hit hard by a strict lockdown imposed by the country’s president Cyril Ramaphosa, which has since been relaxed, as well as a drop-off in demand for its commodity exports.
Even before the pandemic, it was already blighted by power cuts and the costs of supporting struggling state-owned enterprises.
Unemployment in the first three months of 2020 reached 30.1%, and the economy is now expected to contract by 7.2% this calendar year – the largest fall in nearly 90 years, Mboweni said.
The government’s economic support package has so far included 500bn rand (£23.14bn) – “one of the largest economic response packages in the developing world”, according to the finance minister.
He said he wants to “not merely return our economy to the way it was before the virus, but forge a new economy in a new global reality,” quoting the president’s remarks from a 21 April speech.
Debt, Mboweni said, is hamstringing South Africa, with 21% of all government revenue spent on paying interest on past debts.
“This level of indebtedness condemns us to ever-higher interest rates. If we reduce this debt, we will reduce interest rates for everyone and we will unleash investment and growth,” he said,
But Covid-19 will force gross government debt to rise to 81.8% of GDP, up from 63.5% last year.
