Page 60 - IRMSA Risk Report 2021

3.12

PROLONGED DEEP ECONOMIC RECESSION AND/OR
ECONOMIC COLLAPSE
This year’s medium-term budget policy statement (MTBPS) provided another sobering but realistic assessment of government
finances, especially the rapid and unmitigated deterioration in key fiscal parameters during 2020. More importantly, it revealed
that without significant fiscal reforms – and an improvement in economic growth – the government’s fiscal position will deteriorate
further, quickly reaching a point where an outright crisis is inevitable. This would have severe implications for financial markets,
as well as the broader economy.
SCENARIOS FLAGS SUCCESS STORIES
COUNTRY FLAGS C F
OWNING OUR FUTURE President Cyril Ramaphosa’s successful
1. LEADERSHIP drive to raise investment pledges from
local and foreign companies to rebuild the
2. INSTITUTIONAL CAPACITY economy in the wake of the devastating
3. POLITICS Covid-19 pandemic that has wiped out
prospects of economic growth and job
4. SOCIAL COHESION creation.
5. NATIONAL POLICY
6. SERVICE DELIVERY
7. INEQUALITY
8. ECONOMY
PERPETUAL FAKE IT UNTIL WE
HANGOVER MAKE IT, OR NOT 9. GLOBAL TRENDS
10. CLIMATE
C – CURRENT (2020/21) F – FUTURE (2030)
The Minister of Finance made it clear that “options to stabilise the fiscus are becoming increasingly limited”. It is also evident that without
a sustained increase in economic growth accompanied by an increase in employment and an improvement in revenue collection and tax
morality, the South African government is going to continue to struggle to meet its revenue targets. Without higher economic growth, tax
collection will continue to dwindle, scuppering government attempts to meet its social-economic objectives.

TOP 5 CHALLENGES TO ACHIEVING TOP 5 RISK TREATMENT OPTIONS AND
TARGETS OPPORTUNITIES
1. Low tax collections caused by low business and 1. More efficient tax collection, run SOEs as profitable
consumer confidence. Corporate SA not investing in entities, align revenue with expenditure in government and
new projects and consumers are afraid to spend. restrict government spending.
2. High interest burden – budget deficit at an all-time high. 2. Government policy reforms to stimulate economic growth.
Means we will collect tax to pay interest. Call on all people to observe Covid-19 safety protocols to
prevent a move back to stricter lockdown regulations.

3. SOE Bailouts – eat into the budget and increase 3. Stricter management and discipline enforced at SOEs.
borrowings. Capital expenditure prioritised over consumption
expenditure and matching of income and expenditure.
4. Poor allocation between consumption and infrastructure 4. Prioritise capital expenditure over consumption
projects – what is the make-up of these projects, do they expenditure and matching of income and expenditure.
create local jobs and who benefits – SA or the overseas
company who build the project – for example: e-Tolls.
5. Wage cuts – the R316 billion in government wages cuts 5. Develop employee ownership and profit share reward
may not happen, given the pressure from Unions – who schemes to encourage profitability and better management
had a taste of succeeding with SAA. of parastatals.

FACTS AND FIGURES
BUDGET
• Government revenue is now projected R1.28 trillion in 2020/2021, which is R312.8 billion less than in February 2020
and R430 billion below what was envisaged 3 years ago.
• TAX
• R235.3 billion allocated to Health which equals to 4.5% of GDP (R5 240 billion) for 2020/21.
• 2.9% increase in Health Budget allocation for the next 3 years.
• R8.9 billion reduction in Employee Compensation for 2020/21. Total reduction over the next 4 years to 2024 amounts
to R72.7 billion.
GDP
• Due to Covid-19, GDP forecast to decline by -7.8% in 2020, after growing by only 0.2% in 2019.
• 2021 GDP forecast revised up from 2.6% to 3.3%, while the growth estimates for 2022 and 2023 are little changed at
1.7% and 1.5% respectively.
FISCAL DISCIPLINE
• 2007/08 & 2011/12, government non-interest spending grew by an annual average of 14%, due to increase in public-
service compensation and an expansion of social grants.
Source: Medium Term Budget Policy Statement 2020 – 28 October 2020, Stanlib Economics Team, October 2020
https://www.ecr.co.za/news/news/ramaphosa-over-50-companies-commit-invest-sa/
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