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South Africa's economy is expected to contract by 7.2 per cent in 2020 from the marginal expansion predicted in February, dragged down by the ravages of the Covid-19 global pandemic, Finance Minister Tito Mboweni said on Wednesday.
Presenting a supplementary budget to Parliament via video conferencing because the pandemic has necessitated physical distancing, Mboweni said this was the largest contraction in nearly 90 years.
He said commodity price increases and a weaker oil price had softened the blow, but that as a small open economy reliant on exports South Africa had been hit hard by both the collapse in global demand and the restrictions to economic activity brought on by the health crisis.
A supplementary budget review from the National Treasury said millions of jobs were at risk and millions of households were experiencing increased hardship.
"The pandemic has had a profound impact on South Africa," the National Treasury said.
"All economic sectors have experienced a sharp downturn and small businesses in particular face extreme pressure. Tax revenue projections are down sharply."
Moreover, it added, the epidemiological path and economic consequences of the coronavirus pandemic were both highly uncertain and evolving rapidly, necessitating rapid adjustments in policy and forecasts."
It said over the past three months, South Africa's government had prioritised public health to save lives and had taken the difficult step of severely restricting economic activity at a time when gross domestic product (GDP) growth was already weak.
"South Africa’s R500 billion fiscal relief package is designed to help households and businesses to weather the short-term effects of the crisis," the treasury added.
The Finance Minister said that debt was South Africa’s “weakness”.
“We have accumulated far too much debt; this downturn will add more.
This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts,” he said.
“This indebtedness condemns us to ever-higher interest rates. If we reduce debt, we will reduce interest rates for everyone and we will unleash investment and growth. Our Herculean task is to close the mouth of the Hippopotamus,” Mboweni said.
(- African News Agency (ANA) - additional reporting by AFM News)
