• Isaah Mhlanga – Chief Economist | Murendeni

Boosting economic growth is the only option left but will the politics get out of the way?

COVID-19 SERIES 4 – 2020/21 supplementary budget

Boosting economic growth is the only option left but will the politics get out of the way?


  • National Treasury forecasts economic growth of -7.2% (in line with SARB’s -7.1%) and slightly worse than our April forecast of -6.1%.

  • The contraction in growth leaves a tax shortfall of R304bn (inclusive of R26bn) tax relief compared to the February budget.

  • New revenue measures are at the margin and only come in 2021/22 and 2022/23 at R5bn and R10bn respectively.

  • Expenditure rises by R145bn (inclusive of Land Bank recapitalisation) compared with the February budget, largely related to COVID-19 spending.

  • Consolidated budget deficit rises to 15.7% of GDP while the main budget deficit is at 14.2% from 6.8% and moderating to 7.7% by 2022/23.

  • The debt path rises to 82% of GDP this fiscal year and explodes above 100% in 2024 if no action is taken to cut spending and grow the economy.

  • A primary surplus in 2023/24 is pencilled in through R230bn expenditure cuts in 2021/22 and 2022/23 (in addition to R160bn public sector wage savings pencilled in the February budget) and further cuts thereafter.

  • Zero-based budgeting (ZBB) will be introduced from October onwards to cut waste.

  • All considered, the medium-term outlook is too ambitious, as it relies on spending cuts instead of higher economic growth and has execution risks.

South Africa’s macroeconomic environment has significantly deteriorated to its worst performance in history

Economic conditions have significantly worsened since the February budget, with the International Monetary Fund releasing its mid-year economic outlook updated for global economic growth, where it expects conditions to deteriorate compared to its April world economic outlook. The global lender now expects global growth to contract by 4.9% (compared to -3.1% previously) before rising to 5.4% in 2021. In line with weak global expectations, National Treasury forecast economic growth to contract by 7.2% in line with the South African Reserve Bank forecast of -7.1% – much worse that its February forecast of 0.8% in 2020 from 0.2% in 2019. Both Treasury and SARB forecasts are just over a percentage point worse than our April forecast of -6.4%.

The contraction in economic growth will come with company bankruptcies and job losses. Indeed, Statistics South Africa reported this week that the unemployment rate has increased to 30.1% at the end of March 2020 from 29.1% at the end of 2019. This was pre-COVID-19 impact, which implies that when the impact of the pandemic is reflected, the unemployment rate will rise further and result in income loss. Even for those employees who will not lose jobs, their salaries and wages could have been reduced as companies try to save costs. The impact of lower spending power combined with lower petrol prices and a dent in consumer confidence result in a decline in demand pull inflation, which the Treasury forecast at 3.0% in 2020 before rising to 3.9% in 2021. These forecasts are slightly below the SARB’s forecast of 3.4% and 4.4% in 2020 and 2021.

All major tax revenue sources to undercollect

There is a significant impact on all tax revenue sources, which results in a R304.1bn tax revenue undercollection in the current fiscal year relative to the February 2020 budget baseline. With the expected increase in liquidations and insolvencies and rise in unemployment, corporate income tax (CIT) and personal incom