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JOHANNESBURG – South African Finance Minister Tito Mboweni warned on Sunday that the economy could contract by more than 7 percent predicted by lawmakers and the central bank for 2020, adding that public finances are “overloaded.”
The economy of Africa’s most industrialized nation contracted by more than half in the second quarter of this year, an unprecedented drop caused by anti-coronavirus restrictions.
Looking ahead, there is a “risk that the real GDP result for 2020 will be lower than previously thought,” Mboweni wrote in the local Sunday Times.
READ: South Africa’s economy contracts 51% in the second quarter
The Treasury and central bank expect the economy to contract 7.2 and 7.3 percent, respectively, this year, after the country entered a tight lockdown in March that was already in recession.
Mboweni noted that public finances, which were already in an “unsustainable position” before the pandemic, were now “overburdened.”
“The reduction in economic activity in the second quarter has translated into lower tax revenues,” the minister wrote, adding that emergency tax relief to keep households and businesses afloat would exacerbate the loss.
The government is expected to reach no more than 300 billion rand ($ 18 billion) in tax revenue, more than six percent of GDP, Mboweni said, forcing the heavily indebted country to “borrow even more.” .
But he also promised reforms to get out of the hole, writing “we must be bold in tackling what has impeded our nation’s economic growth and progress.”
READ: South Africa’s economy shrinks 2% in Q1 as recession deepens
He wrote that one of the government’s priorities would be to guarantee “adequate and reliable electricity,” backed by a commitment to unlock private investment in the public sector.
State operator Eskom’s unreliable electricity supply, the fleet of rickety coal-fired power plants, is often seen as a source of economic instability in South Africa.
The country accounts for around half of the coronavirus cases on the continent, with more than 648,000 infections and 15,427 deaths recorded to date, although daily increases have been declining since July.
