With the sudden spread of COVID-19 across the globe, and the need for our government to initiate a national lockdown to control the rate of infection and manage the capacity of hospitals and clinics to care for the affected and vulnerable, the National Treasury has needed to adjust the budget that was first presented in February this year to accommodate for the financial impact felt over the last few months.
Though these can seem like daunting times and can place your finances under pressure, we’ve compiled this helpful guide to explain the major changes that will take place in our economy, and what you can expect from the next few months.
While there’s some uncertainty, we are here to help, and have also put together a list of helpful resources to empower your money management. For more information, you can read our articles on What Financial Relief is Available During Lockdown, and our guide to Managing Your Money in Lockdown.
What did the Minister announce?
During the Emergency Budget Speech, Minister of Finance Tito Mboweni presented his outline of the country’s fiscus after the impact of COVID-19. Largely, the Minister’s speech outlined the means through which the National Treasury plans to reduce the debt our nation finds itself in, and to divert additional money towards social grants and healthcare.
The Minister announced that South Africa’s economy will contract by 7.2% – meaning that, similarly to global economic growth, South Africa’s economy will come under severe pressure. In numbers, the Treasury expects that global economic growth will contract from 3.3% to year, to -5.2% by the end of the year.
GDP, or Gross Domestic Product, is a term that refers to the value of all finished goods and services made in a country within a specific period (usually a year). The Treasury expects that our nation’s GDP will only grow by 2.6% in 2021, and by 1.5% in 2022 and 2023.
This puts our national economy under pressure, as our nation needs to service debts. Globally, all countries either borrow money from one another, or from entities such as the International Monetary Fund (IMF) to fund and reach their objectives or to cover shortfalls. This principle, although on a much larger scale, is similar to how a person might use a personal loan to bridge an immediate financial gap.
Just as a loan provider would verify that a loan applicants’ income can service the level of debt they would wish to take on, countries need to raise their GDP, bolster their economies, and create jobs to sustainably repay their debts.
Unfortunately, the Minister announced that South Africa’s unemployment rate had grown by one percent to 30.1% – meaning more people are without jobs and would be reliant on funding through social grants until they can access work opportunities.
Additionally, South Africa is also expected to see a R300 billion tax shortfall and will have a budget deficit of R761.7 billion, or 15% of our country’s total GDP.
These factors, together, mean that our government expects – and needs to – urgently act to reduce our debt levels, create jobs, and be able to fund vulnerable persons either suffering due to a loss of income or the health effects of COVID-19 to ensure that our nation can prosper in the future.
What major changes can we expect in the future?
During his speech, the Minister outlined increased budgets for COVID-19 healthcare-related spending and prioritises job creation.
The Minister outlined R21.5 billion for COVID-19-related healthcare spending, R12.6 billion to front-line healthcare workers treating COVID-19 patients, and that each of South Africa’s 9 provinces is expected to set aside R5 billion to support educational institutions and structures, welfare support, and quarantine sites for affected patients.
Additionally, the Minister set aside R41 billion to aid a relief package through the Department of Social Development and the rollout of a Special Relief of Distress Grant that can support an additional 1.5 million people. These measures would come to an end in October 2020.
The Minister outlined that R100 billion would be set aside to address the jobs crisis, where a “repurposed public employment programme” and a “Presidential Youth Employment Intervention” would be proposed, and lastly, that no new taxes would be planned for the remainder of 2020.
What does this mean, and how can I prepare?
The speech outlines the challenging economic future facing South Africa. In realistic terms, the next few years will see ordinary South Africans work to create jobs, access new opportunities, and work in concert with our government to ensure that our national debts do not reach unsustainable levels.
Should our country’s level of debt increase, we can expect inflation to rise. This means that the price of goods and service will increase, as the purchasing power of our currency – the Rand – lowers. Accordingly, if the South African economy can grow, we should see deflation – which is where the price of goods and services will become more affordable.
Into the future, this may mean that our economy and the price of goods is far less stable than usual. Realistically, our future economic situation may mean that South Africans need to “tighten their belts” – indicating that it will be important for households and individuals to re-evaluate their spending and planned expenses, and revise their budgets to ensure they can remain steady.
To prepare, it is up to every South African to manage their finances effectively. This means keeping a steady budget, managing expenses, and wisely managing personal debts will be important to ensure that we can each meet sudden economic changes and new realities without anxiety.
Our Financial Readiness Pack contains essentials that can help you plan ahead, and includes not only a budget to help you manage your finances, but further guides to help you reduce your levels of debt, set up a savings plan, start an emergency fund, and includes tips on how you can spot scams and prevent financial fraud.
During this time, we continue to lend responsibly, and aim to help our customers address their immediate financial gaps with loans that offer flexibility and control.
As Finance Minister Tito Mboweni offered, "Just as we have toiled together to manage the pandemic, let us harness this same unity of purpose and build the infrastructure our nation needs."