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Finance Minister Tito Mboweni’s budget has been received very positively, as demonstrated by the reaction from markets. SA Inc companies have rallied, the rand initially strengthened, and even the bond market is acting positively. However, while there are notes of hope, this budget also demonstrates a number of key risks, overly optimistic assumptions and potential weaknesses, pointing to an extremely challenging path ahead for the country.
Over the course of lockdown, pundits have shared some harrowing statistics regarding the increase in unemployment in South Africa. In general, our unemployment rates are moving in the wrong direction and the affected households have suffered great hardship as a result, but it is important to understand what this means for our tax base and our growing budget deficit.
Will investment fundamentals return in 2021 or will the great disconnect of 2020 continue? As we enter 2021, the market’s recent bout of festive cheer will have left many investors feeling upbeat. However, do not allow yourself to be carried away by the market’s high spirits. While there are many reasons to feel positive about the year ahead, it is equally important to note what markets seem to have forgotten – namely that the pandemic and its consequences are not yet behind us.
The Minister of Finance, Tito Mboweni, delivered his much anticipated Medium-term Budget Policy Statement (MTBPS) on Wednesday, 28 October 2020. Hard choices and reform implementation are key to achieving five-year stabilisation plan.
Although the 2020 Medium Term Budget Policy Statement stated its intention to prioritise economic recovery and fiscal consolidation in order to support President Ramaphosa’s economic recovery plan, the reality is that while this budget hit some of the right notes, it did little to instil confidence that the country is on the path to economic recovery.
In his Adjustment Budget Speech Minister of Finance Tito Mboweni told us what we already knew. Debt is up and we need to borrow even more, spending will increase, government revenue will be less than expected, the deficit will increase, the economy is expected to contract, and unemployment is higher than usual.
We have prepared a short summary and useful infographic following the president’s announcement of a R500 billion economic and social relief package in his address on Tuesday night 21 April 2020. The source of the remainder of the R500 billion financing outside of the R200 billion loan guarantee scheme, budget reprioritisation of R130 billion and around R100 billion from multilateral sources and global partners
Local investors should stay invested to reap strong future returns. An early decisive response to the COVID-19 threat should contain the spread of the virus in South Africa, but the economic repercussions in the short term will be costly. Local measures to contain the virus will add to an already weak economy and negative global impact.
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