Mboweni revises 2020 economic growth contraction to 7.8%

Finance Minister Tito Mboweni has revised this year’s growth contraction to 7.8% from the 7.2% estimate in June. Delivering the Medium Term Budget Policy Statement in Parliament on Wednesday, Mboweni says government will propose a five-year fiscal consolidation plan to support the economy and create jobs.

“We table a five-year fiscal consolidation pathway that promotes economic growth while bringing debt under control. The fiscal measures realign the composition of our spending from consumption towards investment and support efforts to lower the cost of capital. Our revised fiscal framework puts us on a course to stabilise the ratio of debt to-GDP at around 95% within the next five years. The stock of gross debt will rise from roughly R4 trillion this year to R5.5 trillion in 2023/24.”

Economic growth is now expected to recover in 2021 at 3.3%.

According to the National Treasury, the budget deficit will narrow from 15% in this financial year to 10.1% in 2021/22.

According to the National Treasury, the budget deficit will narrow from 15% in this financial year to 10.1% in 2021/22. This will be achieved through a shift in expenditure from consumption towards capital investment.

“We forecast the South African economy to grow by 3.3% in 2021; 1.7% in 2022 and 1.5% in 2023. Mr President, by putting all our efforts into implementing the Economic Reconstruction and Recovery Plan, we can accelerate growth to 3% or more. This will secure fiscal sustainability and build this economy better than before.”

Minister Tito Mboweni tables the Medium-Term Budget Policy Statement:

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In addition, the Presidency and the National Treasury have established Operation Vulindlela to drive effective implementation of structural reforms with the aim to boost economic growth.

The reforms are expected to raise growth by 3% over the next 10 years. However, these reforms are only expected to begin yielding results in the next few years.

“Operation Vulindlela is a critical coordination tool to unlock and fast track implementation of the structural economic reform agenda. Deputy Minister David Masondo is leading this initiative, and a technical team, headed by Dr Sean Phillips, will draw on expertise and capacity from the public and private sectors. This will ensure that implementation is well-coordinated, sequenced and timeous.”

#MTBPS2020: Operation Vulindlela is a critical coordination tool to unlock and fast track implementation of the structural economic reform agenda.-Minister @tito_mboweni pic.twitter.com/fCCUCbv7FQ

— South African Government (@GovernmentZA) October 28, 2020

Mboweni has also warned that failure to implement structural reforms and a possible second wave of COVID-19 infections could have a negative impact on growth in the future.

Mixed reaction to Minister Mboweni’s budget:

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