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Budget review: Plans to rescue the economy

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Finance Minister Tito Mboweni’s medium term budget has broken with tradition by providing details of a plan to rescue the economy – something notably lacking in previous years.

This budget is the first to be presented in the middle of a health crisis which forced government to impose lockdowns, resulting in an expected economic contraction of 8% or more this year.

The recovery plan focuses on infrastructure roll-out and reforms.

Here are some of the key points:

There will be immediate measures to boost confidence and investment, and longer‐term reforms to promote sustained higher economic growth;

In the short term, the economic recovery plan will focus on building infrastucture, expanding electricity generation, allocating digital spectrum, and supporting rapid industrialisation and employment.

At the same time, government will roll out structural reforms such as modernising network industries, reducing barriers to entry, and increasing regional integration and trade. The National Treasury estimates that, in combination, these reforms can raise growth to over 3 per cent over the next 10 years and create more than 1 million jobs.

The Infrastructure Fund will complement the plan’s focus on capital investments.

Operation Vulindlela implementation unit will be staffed by a full‐time technical team that draws on additional expertise and capacity in the public and private sectors.

Where the spending reductions will come from

Government proposes growth in the public‐service wage bill of 1.8% in the current year and average annual growth of 0.8% over the 2021 medium-term period.

Government has not implemented the third year of the 2018 wage agreement. Notwithstanding that the matter is before the labour court, government is actively engaging with labour unions to find a solution to a more sustainable cost of employment. A wage freeze will also be implemented over the next three years.

Additional options to be explored include harmonising the allowances and benefits available to public servants, reconsidering pay progression rules and reviewing occupation‐specific dispensations.

The budget deficit will hit 15.7% in the current fiscal year, with a surplus expected only in 2025.

Gross debt as a percentage of GDP rising to 95% then slowly receding