Treasury working to limit fiscal deficit due to Covid-19
The Treasury will explore an amended appropriations bill, and all regulators, including Sars, will operate during the lockdown
The National Treasury is working to limit the fiscal deficit through reprioritisation, spending adjustments and postponement of certain initiatives in its bid to manage the effect a nationwide shutdown will have on the economy and the state’s budget.
While fiscal policy alone cannot address the increasing pressure that SA faces under the Covid-19 lockdown, the Treasury said it will continue working on proposals on how to deal with funding pressures created by the crisis, director-general Dondo Mogajane said on Tuesday.
On Monday, President Cyril Ramaphosa announced the intensified measures to halt the spread of the coronavirus and prevent the country’s health system from being overwhelmed. The decision came after the number of reported cases of Covid-19 rose more than six-fold in a week. On Tuesday morning health minister Zweli Mkhize confirmed that cases had reached 554.
The virus struck SA when its economy was already weak, having fallen into recession in the fourth quarter of 2019. Though Ramaphosa announced a range of measures to support the economy in the coming months, ranging from targeted support for small businesses to a series of tax measures, SA was already under strain before the virus hit.
In its February budget, the Treasury was expecting a budget deficit of 6.8% in 2020/2021, while government’s debt levels were expected to reached 71.6% by 2022/2023. Due to the virus, these metrics are likely to deteriorate substantially — at the same time that many economist expect the country’s growth to shrink substantially.
The government must continue to fund itself through the crisis and despite the turmoil in capital markets. “For now, the National Treasury is working within its means and, depending on the impact of the virus, different options will be considered,” Mogajane said.
To manage the budget process through the lockdown, Mogajane said the Treasury will explore an amended appropriations bill, but in the meantime allow virements — the transfer of resources from one programme to another within the same department — where possible.
“This can be considered [part of] the initial response to the coronavirus, in so far as reprioritising towards the front-line sectors is concerned,” he said. “But, that said, the Treasury is still assessing the macro-economic impact of the pandemic, as well as the recent escalation of measures to deal with the outbreak.”
This is in addition to other factors such as the oil production dispute between oil cartel Opec and Russia, and idiosyncratic domestic factors such as load-shedding, which will ultimately inform any decisions on the fiscal framework, Mogajane said.
“All things being equal we can still use the medium-term budget policy statement (MTBPS) to retable the budgets and the new fiscal framework,” he said.
Constraints aside, Mogajane said the Treasury “stands ready” to support the collective work of government and the interventions being developed by various ministries in response to the crisis.
The Treasury has relaxed government procurement processes for goods needed to fight the coronavirus, and will later issue guidelines on how to access the support measures announced by the president.
Mogajane said that all regulators, such as the SA Reserve Bank, Sars and the Financial Sector Conduct Authority, will continue to operate through the lockdown.