While Finance Minister Tito Mboweni’s Supplementary Budget 2020 Speech – delivered yesterday afternoon (June 24) – painted a rather bleak picture of more job losses and greater debt, the silver lining is that loans will be more accessible to businesses in the short- to medium-term.
The Minister highlighted that the global economy was expected to contract by 5,2%, which will “bring about the broadest collapse in per capita incomes since 1870”. Furthermore, the South African economy is now expected to contract by 7,2% in 2020 – the largest contraction in nearly 90 years, according to Mboweni.
For the first three months of the year, South African unemployment has also increased by one percentage point, reaching 30,1%. “Our early projection is that gross national debt will be close to R4 trillion, or 81,8% of GDP by the end of this fiscal year,” said the Minister. This is compared to an estimate of R3,56 trillion or 65,6% of GDP projected in February.
“Without external support, these borrowings will almost entirely consume all of our annual domestic savings, leaving no scope for investment or borrowing by anyone else. For this reason, we need to access new sources of funding. Government intends to borrow about US$7 billion (R121,26bn) from international finance institutions to support the unexpected COVID-19 pandemic response,” Mboweni pointed out.
However, he added that, as of mid‐June, the Unemployment Insurance Fund (UIF) had provided R23 billion in COVID‐19 relief to over 4,7 million workers affected by the pandemic.
Mboweni conceded that there were still challenges but that government was confident that the team was working tirelessly to address this.
Expansion of loan guarantee scheme
He pointed out that now that South Africa had moved to advanced Level 3 of lockdown, most of the economy was open for business. He said government remained committed to help businesses to get moving.
It is for this reason that the SA Reserve Bank has lowered interest rates and that the loan guarantee scheme now also includes a business restart option, for businesses that need support to get up and going after the lockdown.
“This will apply to all businesses, including those with turnover of more than R300 million,” said Mboweni, noting that the loan guarantee scheme was expanding rapidly.
“We are also finalising amendments to the repayment holiday and turnover limit, and relaxing terms and conditions to support lending. The South African Reserve Bank and the commercial banks are finalising the revised legal arrangements and will make announcements shortly,” he said.
Work is also continuing to expand the scheme to non‐bank lenders.