Hilary Joffe Columnist
An empty street outside the Johannesburg Stock Exchange in Sandton, Johannesburg. Picture: AFP/SIPHIWE SIBEKO
An empty street outside the Johannesburg Stock Exchange in Sandton, Johannesburg. Picture: AFP/SIPHIWE SIBEKO

As the government moved to start limited reopening of the economy this week, the Treasury gave shock figures in parliament on how badly SA’s economy could be affected by a prolonged lockdown — and the taxman revealed that the lockdown and the ban on cigarettes and alcohol were costing billions in lost revenue.

South African Revenue Service commissioner Edward Kieswetter said on Thursday that the month to date had seen a shortfall of R1.5bn in excise tax on alcohol and tobacco, and that this, with the economy's very weak performance, had already resulted in a R13bn revenue shortfall for the first month of the fiscal year, which began on April 1.

In a virtual presentation to parliament by the Treasury, Kieswetter cited scenarios compiled by the UN University, UNU-Wider, suggesting that a long “lockdown plus” could result in the economy contracting as much as 16%, with 7-million jobs at risk and tax revenue falling almost 15%. Even a quick recovery would see a contraction of worse than 5%, the scenarios suggest.

The Treasury has yet to update its own growth and fiscal figures, which will look very much worse than those tabled just two months ago in the February budget.

It has promised an adjusted supplementary budget soon, which will reveal how it plans to reallocate R130bn of spending to fund part of the R500bn stimulus package that President Cyril Ramaphosa announced last week, as well as how it plans to find new money to combat Covid-19.

Acting budget office head Edgar Sishi said the Treasury could be ready with an adjusted budget by the end of June, though the February budget must still be adopted by parliament before it can be adjusted.

The Treasury’s update came after a frantic Wednesday evening in which the government published new level 4 lockdown regulations — and rating agency S&P Global took SA's rating deeper into junk territory, downgrading it to three notches below investment grade.

S&P’s action came after SA lost its last investment grade rating when Moody’s downgraded it at the beginning of the lockdown.

S&P has, however, put SA on a stable outlook, indicating it does not contemplate further downgrades. It said the pressures related to very low GDP growth and high fiscal deficits were balanced against SA’s deep financial markets and monetary flexibility.

‘Significant’ adverse impact

S&P said pandemic-related pressures would have “significant adverse implications for SA's already deficient growth and fiscal outcomes”.

The rating agency now projects the economy will shrink 4.5% this year — compared with its November estimate of 1.6% growth — and it sees the fiscal deficit widening to 13.3% of GDP this year, the widest deficit in SA’s democratic history.

A long ‘lockdown plus’ could result in the economy contracting 16%, with 7-million jobs at risk

Analyst Ravi Bhatia at JPMorgan Chase says net debt will rise to 75% of GDP and by 2023 interest will consume an ever larger share of public resources, consuming 22% of government revenue and 6.5% of GDP.

Some economists expect even worse figures, especially now that the government has made it clear that SA could be in one or other form of lockdown for the next six to eight months, with the economy being only very gradually reopened in a “risk-adjusted” manner aimed at containing the virus, which is expected to peak only at the end of winter.

Trade & industry minister Ebrahim Patel on Wednesday evening announced a final set of new level 4 regulations regarding which sectors of the economy could be reopened from Friday.

The regulations were revised after more than 850 submissions were received from organised business bodies and individual businesses. Some of the comments were taken into account — the cabinet reversed its decision to continue the ban on e-commerce. Patel said e-commerce would be expanded incrementally.

Restrictions on international trade have also been eased, though the minister still urges support for local manufacturing, and more shops and traders will be able to sell a wider range of goods.

Patel said the step-by-step reopening of the economy aimed to save lives. The framework would allow the easing of the lockdown so the economy could pick up speed and get people back to work.

Though there is wide support for the health objectives of the lockdown, there has been much debate over how to approach the gradual reopening of the economy in a way that will lower the risk of transmission of the virus but allow activity to restart and jobs and businesses to be saved.

Intellidex chair Stuart Theobald said in a briefing this week SA had taken a bureaucratic approach to the lockdown, which could prove difficult in practice with pieces of the supply chain coming in and out and businesses struggling to find some inputs.

Intellidex economist Peter Attard Montalto now forecasts that the economy will contract 10.6%, even with the R500bn stimulus package, and that this year will see a “revenue shock” of R230bn as the economy contracts, with the fiscal deficit reaching 17.7% of GDP.

Other economists are revising their forecasts to take into account the strictures of level 4 and the uncertainty about how soon SA will get to level 3 or below.

The April consensus forecast for growth was minus 5%, with the unemployment rate expected to rise to 33%, but Stanlib economist Kevin Lings said while this was extreme, “it seems a little optimistic ... given the likely very gradual easing of the lockdown conditions”. Stanlib is forecasting GDP to decline 6%. Business for SA has said a decline of at least 8%-10% is more likely.