2020 Supplementary Budget: Minister of Finance briefing

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Finance Standing Committee

25 June 2020
Chairperson: Mr J Maswanganyi (ANC); Mr Y Carrim (ANC, KwaZulu-Natal)
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Meeting Summary

Video: JM: SC on Appropriations, SC on Finance, SC on Appropriations & SC on Finance, 25 June 2020

2020 Supplementary Budget Speech, Bills & Key documents

The Finance and Appropriations Committees of both Houses received a virtual briefing by the Minister of Finance and his team from National Treasury on the 2020 Supplementary Budget. The Minister stated that the Supplementary Budget is presented in the context of several global, continental and local economic challenges. South Africa’s economy is expected to contract by 7.2%. Government has lost an estimated R300 billion in revenue but spending pressures continue to grow. Post COVID-19, the country is facing the threat of a sovereign public debt crisis and the rise in debt leads to the crowding out of all other government expenditure. Analysts expect a V-shaped recovery depending on what countries do individually and collectively. Government will have to seek international resource mobilisation to respond to the challenges. It has gone to the BRICS Bank, the World Bank, the African Development Bank and the International Monetary Fund (IMF). Government intends to borrow US$7 billion from multilateral finance institutions for its pandemic response. It also intends to borrow US$4.2 billion through the IMF rapid financing instrument, which is a low-interest emergency facility. The Minister stated that the herculean task is to close the deficit gap, labelled the ‘hippopotamus mouth’, to return to the budget surplus years. The gap between government revenue and expenditure is expected to widen and debt service costs now take an increased share of budget revenue.

The key challenge is how to expand the economy. Treasury stated that for this to happen, fiscal and economic reforms need to be implemented now, to raise confidence and growth, to support increased savings investment and employment. Cabinet has adopted the active approach of debt stabilisation. It has endorsed the target of a primary surplus by 2023/24. To achieve this, government must:
• close the deficit through spending reductions,
• improve tax revenue, however, more weight is on managing spending.
• implement reforms to achieve higher levels of economic growth.

Treasury presented the in-year spending adjustments and the changes to the division of revenue with a change to National departments (4.3%), Provinces (0.6%) and Local government (5.6%). Treasury said the performance of state owned companies is expected to deteriorate and will put additional pressure on the fiscus. This is because most of the state owned companies (SOCs) were in financial distress pre-COVID. The COVID-19 pandemic underlines the urgent need for broad-based reforms at SOCs so that SOCs can become efficient and financially sustainable.

Members raised concerns about the feasibility of the ‘active scenario approach’ given that very little economic reform has happened to date. Members were concerned about how the budget deficit would be reduced and the safety of people’s pension funds. The Deputy Minister reassured the Committee that there is no intention to change regulations or policy in such a way that would sacrifice returns from pension funds. These funds will be safe.

Members raised concerns about government approaching the IMF and the surfacing of conditionalities that will compromise the sovereignty of the state. Treasury stated that it is not going to give into anything that will compromise the sovereignty of the state. The agreement will be on what South Africa has committed to in the past and the IMF will be checking on the progress of these commitments. It does not see these as conditionalities but part of the reform package, with commitments that South Africa made by itself. Members discussed the implications of the Moody’s downgrade on government bonds and its response to the Supplementary Budget. SALGA raised concerns about the decline in revenue collection from municipality rates, the suspension of conditional grants and the multi-year public service wage settlement and requested an urgent review of fiscal reform for local government. The Committees requested details on how the R100 billion allocated to job creation would be used. Treasury replied that it will be rolled out over the three-year Medium Term Expenditure Framework (MTEF), and it will give further details when presenting the October Medium Term Budget Policy Statement (MTBPS). The Committees requested details on the state bank plans announced last year and agreed that this should be added to the agenda. The Chairperson announced the parliamentary procedure and schedule that would follow the Supplementary Budget Speech of 24 June.

Meeting report

Mr J Maswanganyi (ANC), Standing Committee on Finance Chairperson, announced the procedure to follow for the 2020 Supplementary Budget. The National Assembly House Chairperson, Mr Frolick, agreed that instead of processing the budget the traditional way, there is the possibility of referring the budget to all Committees and have a NA plenary to discuss the adjusted fiscal framework on 8 July 2020. The Parliamentary Committees will compile reports for approval by the NA and each budget vote will be dealt with in mini-plenaries.

2020 Supplementary Budget: Minister of Finance & Director General briefing
Minister of Finance, Tito Mboweni, stated that the Supplementary Budget is presented in the context of several economic challenges. There has been a contraction in global, continental and local economic growth. Analysts expect a V-shaped recovery depending on what countries do individually and collectively. South Africa’s economy is expected to contract by 7.2%. Government has lost an estimated R300 billion in revenue. Despite the reduction in revenue, there is still spending pressure, mainly from the COVID-19 pandemic. Pre COVID-19, the local economy was in a recession. Post COVID-19, the country is facing the threat of a sovereign public debt crisis and a crowding-out effect, where government’s current borrowing activities will make it difficult for the private sector to access capital in the market for investment.

Government will have to seek international resource mobilisation to respond to the challenges. It has gone to the BRICS Bank, the World Bank, the African Development Bank (AfDB) and the International Monetary Fund (IMF), which has been a difficult negotiation. The consolidated budget deficit is expected to be 15.7% of Gross Domestic Product (GDP). The budget deficit is expected to be 14%. The difference is that the consolidated deficit includes other social insurance activities, such as Unemployment Insurance Fund (UIF) pay-outs. The herculean task is to close the deficit gap, labelled the ‘hippopotamus mouth’ to return to the budget surplus years. The key challenge is how to expand the economy.

Mr Dondo Mogajane, National Treasury Director General, stated that the supplementary budget should be viewed as a bridge to recovery beyond COVID-19. It is laying the basis for what will be presented in the October Medium Term Budget Policy Statement (MTBPS). It sets a timeline to pick up on critical things that will close the deficit, by resetting the guidelines for the 2021 budget.

Mr Edgar Sishi, Treasury Acting Head: Budget Office, said the purpose of the supplementary budget is:
• outline the fiscal measures in response to COVID-19,
• set out government’s commitment to strengthen public finances, and to position the economy for faster and inclusive growth
Over the next several months, government will prepare a set of far- reaching reforms. The determined implementation of these measures will stabilise public debt, contain the budget deficit, and fully restore economic activity to build confidence, increase investment and promote job creation.
 
South Africa’s economic interventions due to COVID-19 are among the largest in the developing world, and elaborated on the key monetary and fiscal policy interventions, which were mildly expansionary before the pandemic. The policy buffers were weak pre-COVID and now the country’s fiscus is dangerously unprepared for another shock and for supporting public investment. The policy buffers can be rebuilt by immediately targeting a primary surplus in the next few years.

Mr Sishi highlighted how the economic environment has worsened since the 2020 Budget Speech in February, with deteriorating global and domestic conditions. Domestic growth in the last quarter of 2019 was lower than expected and the 2019 growth rate was 0.2%. The fiscal position has worsened as the budget deficit has grown ever larger, from R368 billion to R709.7 billion since the 2020 Budget announcement. It has become a structural deficit after failing to recover from the Global Financial Crisis (GFC). The gap between government revenue and expenditure is expected to widen and the debt service costs now take an increased share of the main budget revenue. The rise in debt leads to the crowding out of all other government expenditure.

He elaborated on government’s phased approach to managing the pandemic and the composition of the R500 billion COVID-19 economic relief fiscal package. Government has strengthened its working partnership with the private sector in response to the national emergency. The COVID-19 fiscal relief measures are temporary and provide support where it is needed most. It has been funded by shifting resources from existing programmes and drawing down surplus funds. Government intends to borrow US$7 billion from multilateral finance institutions for its pandemic response. It also intends to borrow US$4.2 billion through the IMF rapid financing instrument, which is a low-interest emergency facility.

The budget forecast indicates a tax revenue shortfall of R304.1 billion in 2020/21. The tax-to-GDP is expected to be worse than that of the GFC, however there should be a V-shaped recovery.

Mr Sishi explained the in-year spending adjustments, the updated fiscal framework for 2020/21 and the revisions to the main budget spending plans for 2020/21. The main budget expenditure is projected to increase to 37.2% of GDP in 2020/21. He presented the consolidated budget spending, spending plans and deficit for the financial year. He highlighted the changes to the division of revenue with a change to National departments (4.3%), Provinces (0.6%) and Local government (5.6%).

An active, integrated approach to the economy and fiscus is needed. Fiscal and economic reforms need to be implemented now to raise confidence and growth, to support increased savings investment and employment. Beyond 2020/21, government has considered two scenarios:
• A passive approach, in which South Africa continues on its current trajectory and debt spirals out of control; • An active scenario, in which major reforms and fiscal consolidation are implemented rapidly to stabilise debt in 2023/24.
Cabinet has adopted the active approach of debt stabilisation. It has endorsed the target of a primary surplus by 2023/24, meaning revenue will exceed non-interest expenditure.

Ms Tshepiso Moahloli, Treasury Acting Head: Asset & Liability Management, spoke about how the gross borrowing requirement will be financed and about the performance of State Owned Companies (SOCs). She stated the financial performance of SOCs is expected to deteriorate, which will put additional pressure on the fiscus. This is because most of the SOCs were in financial distress pre-COVID. The COVID-19 pandemic underlines the urgent need for broad-based reforms at SOCs so that they can become efficient and financially sustainable. She pointed out that the special adjustments budget includes an additional allocation of R3 billion to recapitalise the Land Bank in the current year.

Dr Mampho Modise, Treasury Head: Public Finance, said that the reprioritisation exercise was difficult due to demands changing on a daily basis. The Departments of Health, Social Development, Police and Defence were initially identified as frontline in allocating spending. However, certain departments became more frontline and would need to use their savings for operations, such as the Department of Basic Education would need to prepare the schools for opening. The same applies to the Department of Higher Education which has committed to laptop provision for poorer students and support through student grants. Reprioritisation could not be done in that line because the Department needs to make resources available for the insourcing of laptops. Treasury is working to ensure students do not receive double benefits during the procurement exercise, as some universities have already distributed laptops. The money prioritised for laptops is R3 billion. Treasury has asked higher education institutions to align their data to ensure there is fair distribution.

In the reprioritisation exercise, spending that could not happen due to COVID, such as on transport, was placed in a fort. Any infrastructure projects that could be postponed were pushed back. The implementation of the NHI was postponed to focus on responding to the pandemic within health. Treasury proposed an increase in funding to Health from R10 billion to R25 billion. It also proposed R40 billion towards social grants, which is slightly lower than what the President announced. This is because Treasury observed that seven million people applied for the grants but only half qualified according to the criteria of not receiving any other income from government. It therefore believes that the R40 billion will be sufficient.

The Minister pointed out that the Supplementary Budget is not the February 2020 Budget. It affords them to do supplementary adjustments due to the situation caused by the COVID pandemic.

Mr Sishi highlighted slide 25, pointing out that there has been a significant decline in the projection of the main budget revenue, between the February Budget and the Supplementary Budget. He noted the consolidated budget balances. Comparing the budget balances indicates that the fiscal situation has significantly deteriorated (see presentation).

Discussion
Mr Z Mlenzana (ANC) asked if borrowing from the IMF will not affect South African policies.

Mr Mogajane, Director General, replied that in government’s engagement with the IMF, it is not going to give into anything that will compromise the sovereignty of the state. The agreement will be on what South Africa has committed to in the past and the IMF will be checking on the progress of these commitments. For instance, it will check on the progress in the electricity renewal programme and the transport measures to quickly reduce cross-subsidisation. Treasury does not see these as conditionalities but as part of the reform package with commitments that South Africa made by itself.

Mr S Du Toit (FF+, North West) asked Treasury if it was wise to focus on radical economic transformation rather than stimulating the country’s economic growth.

Minister Mboweni replied that he is not clear on the point of the question and it might be to score political party points. Government has to martial all forces – private, public and corporative – for economic growth. Labelling it radical economic transformation can cause confusion.

Deputy Minister David Masondo replied that the key condition for growth is transformation. There is no need to oppose radical economic transformation and structural reforms. The World Bank has observed that the South African economy is highly concentrated and this has implications for growth as certain assets are underutilised. For instance, if land redistribution is done responsibly it leads to more people having access to land for farming activity and increases production, which is necessary for growth. If assets are concentrated amongst a few, the assets become underutilised and a lack of growth follows.

Dr D George (DA) asked for more insight on the borrowing conditions. The IMF and World Bank will not give funding without demands for structural reform, which will not include radical economic transformation. The funding situation is also making South Africans nervous, with specific concerns of government using people’s pensions funds to close the deficit. He requested that the Minister reassure people that pension funds will not be tapped into. People are also concerned by the announcement by the Deputy Minister about printing more money, which is not a good idea. He asked the Minister to reassure Members that there will be no monetary policy interventions and there will be no pressure on the South African Reserve Bank (SARB) to print more money or issue more bonds, other than for stability reasons.

Mr Mogajane replied that the IMF expects a memorandum of understanding (MOU) between Treasury and SARB. The MOU will speak to the receipts and requests to the IMF, the promissory note of repayment and how the servicing of the loan repayment will be done. The agreement will facilitate disbursement of resources between the institutions. Another major concern with the IMF is ensuring debt stabilizes, which is not a condition but something South Africa has committed to. There are no conditions but rather an agreement on South Africa’s existing commitments. The Ministry of Finance and Reserve Bank Governor will have to send a letter of intent to the IMF, specifying what the funds will be used for and so forth. Thereafter, it will go to IMF management, then its board for approval. Treasury expects the money will be received in the current financial year. Government has also requested US$1-2 billion from the World Bank. It was confirmed last week that US$1 billion from the BRICS New Development Bank (NDB) has gone through.

The Deputy Minister replied that SARB has to supply money in the economy, in the interests of price stability and balanced economic growth. This goal of SARB is articulated in the Constitution and is achieved through several instruments, such as interest rates and bond transactions. If SARB decides to print more money as part of its instrument independence, it should be allowed to do so.

Mr W Wessels (FF+) asked what will be done about the public wage bill. Unions have made it clear that they will not accept the proposals. What happened with Treasury’s policy proposal on reforms? What will happen if SAA fails or is liquidated which will put government in more debt? Is Treasury involved in this process and is it taking this into account? What will the R100 billion for job creation entail and how will it create jobs?

The Minister replied that the wage bill was not spoken of as much as expected because the government and the public service unions went to the bargaining council about a deadlock in negotiations. The matter is still in arbitration and the Public Servants Association approached the labour court. In its documentation to the court, it attached all other public service unions. He prefers to leave the content of the negotiations to the Minister of Public Service and Administration as he has a better legal and policy position to deal with that.

He replied that the SAA issues are too complicated and Minister Gordhan would be better suited to answer. The financial implications are that the February Budget allocated R16.4 billion towards SAA as part of guarantees, which was unavoidable. What happens thereafter (about restructuring) is on SAA and is the domain of Minister Gordhan of Public Enterprises.

Dr Modise replied that the Presidency proposals for the R100 billion for job creation has two elements. Firstly, with departments rolling out programmes, Treasury does not want programmes that have not shown efficiency in the state and is looking at redesigning programmes. The details have not been specified as it is an ongoing process; however the provisional allocation is the R100 billion announced. Government has received a lot of criticism on existing employment creation projects and is relooking at these. It will be rolled out over the Medium Term Expenditure Framework (MTEF). Treasury is looking at doing costing through state institutions or creating a fund and getting expertise from the private sector. More details will be given in the MTBPS.

Mr F Shivambu (EFF) asked for a clear plan on how Treasury intends to use domestic fiscal policy to realise growth. The presentation contains a repetition of orthodox economic theory that is irrelevant to what is happening now.

Mr Shivambu said that the R500 billion relief package is overhyped. He asked why the Minister and President speak of it as a stimulus, given that R200 billion of the expenditure is loan guarantees to businesses that must still go to commercial banks. The Committee should be given a racial composition of who benefitted from this. It is expected that a lot of black people will be excluded from this. R70 billion of the package is tax deferments, which is not an immediate fiscal injection. R40 billion is money withdrawn from the UIF due to the crisis. It is money deposited by workers. Government is making claims that these are interventions when it is money due to workers.

Mr Shivambu asked if domestic fiscal and monetary policies have not been exhausted. There is an over-zealousness to run to the IMF, which will compromise the country’s sovereignty. He raised concerns about the zero-based budgeting method, as in the South African context, government cannot move away from budgetary obligations such as social grants or healthcare.

Ms Moahloli replied that the key challenge is scarcity. South Africa’s gross saving rate is 14.5%, which is the amount available for investment in the economy. Local savings are not enough. Asset growth is not as fast as government’s borrowing requirement, which has tripled to R776 billion. Every week, Treasury raises over R20 billion in various financial instruments to finance the budget deficit. On assets available in the market, R3 trillion is in the non-banking sector such as insurance and finance companies and R6 trillion is in the banking sector. The stock amount of assets under management is significant, however, the flow is very small and still has to be divided amongst the classes.

She pointed out that there are limits to various instruments and there is also the challenge of provident and pension fund withdrawals during this time, in order to cope during the pandemic. Treasury looked at what buffers are available. The buffers are not that significant at about R67 billion. The best combination to finance the gross borrowing requirement would be moderate domestic borrowing and sourcing funding from international finance institutions. Treasury has tactically considered funding sources that are cheap, sustainable and ensure there is a good mixture on risk

Mr D Joseph (DA) requested Minister Mboweni tell the Ministers of Cooperative Governance and Traditional Affairs (COGTA) and Health that people are still smoking despite the ban on cigarettes, and are buying high-priced cigarettes through illicit trade. This impacts on the Value-Added Tax (VAT) collection shortfall. He asked for a timeframe for the debt stabilisation plan. Does it sit with Cabinet or Treasury? Who is in charge of the project? He proposed investigating the rationalization of the Land Bank and the Department of Agriculture as there may be overlaps in some programmes.

Minister Mboweni replied that he would like to take the fifth amendment on the cigarette ban and will leave it to the Ministers responsible for this to avoid getting into trouble.

Ms D Peters (ANC) asked what the overall plan is to deal with the challenge of the escalating debt service costs. Have all stakeholders agreed to Treasury’s solution on this? Slide 13 indicates that commercial banks have a 90 day debt relief, which is probably a lie to loan holders. It is creating further problems for households and businesses as banks continue to charge interest with delayed repayments. Is it possible to give voluntary severance packages (VSPs) to health workers and educators above 55 years of age and that have been infected by COVID-19?

The Minister stated that if banks are not honouring the payment holidays as per the announcement, it will be take up with the Banking Association. The retirement age can be looked at. In the public service, one can take early retirement from the age of 55 years.

Mr G Hill-Lewis (DA) asked who bears ultimate responsibility for the lack of fiscal buffers prior to the crisis, if not Treasury? He asked the Minister what was cut out of his speech on Regulation 28? What is the nature of the commitment to achieve primary balance by 2023/4 announced in yesterday’s Budget Speech? Is it a commitment in the sense of ‘doing whatever it takes to deliver the outcome ’ or claiming best efforts with no promises? South Africa needs the former. What is the Minister’s view of the proposed business rescue package for SAA? The R100 billion for job creation looks like rebranded spending within the existing Extended Public Works programme (EPWP). He requested more detail on how the R100 billion allocation will be spent. He asked if the active scenario plan relies on fiscal discipline, controlled debt and growth reforms from the rest of the departments? Given that historical performance does not show this, does Treasury not think it is overly optimistic to announce that the active scenario is the base case? Is the passive scenario not more likely?

Minister Mboweni replied that Regulation 28 under the Pension Funds Act guides pension fund institutions on investment behaviour. The part that was cut out of the speech was the addition of infrastructure to the guideline that such institutions can invest in immovable property, whilst maintaining the 25% threshold. The Financial Services Regulatory Authority (FSRA) is of the view that the Ministry of Finance should wait until a policy document on this is released first.

Finance Deputy Minister, Dr David Masondo, stated that Regulation 28 guides asset managers on where to deploy money in percentage terms. The immovable property guideline with a 25% limit refers to properties for private consumption. The inclusion of ‘infrastructure assets’ will still fall under the 25% threshold. He reassured Members that there is no intention to change regulations or policy in such a way that would sacrifice returns from pension funds. These funds will be safe.

Mr Duncan Pieterse, Treasury Acting Head: Economic Policy, stated that Chapter 3 of the Supplementary Budget specifies where Treasury thinks government’s reform agenda should be focused, such as cost reduction, fiscal sustainability and credibility. It has been working closely with the economic cluster departments in implementing that agenda which is taking shape. Treasury would like to deliver more of this work at the time of the MTBPS.

The Minister added that structure reforms are not just the function of the state alone. Government provides the regulatory and policy framework and its SOE commitments. What the private sector and other economic agents, like unions, can do is also crucial. What government can do is mobilise other agents.

Mr Sishi replied that the structural gap took hold at the beginning of the decade in 2010 and the fiscal buffers were weakened by:
• having unaffordable wage agreements at the time.
• the financial crisis in State Owned Companies (SOCs) and the rise in bailouts and guarantees.
• failure to restore economic growth post the GFC, which created a problem for fiscal policy that was made under the expectation of growth.

He explained that the primary balance was the balance of the fiscal accounts minus the debt service costs. It is a proxy for areas in fiscal policy that government can influence in the short-term. The active scenario is targeting to achieve a primary surplus by 2024 so as to achieve 87.4% debt stabilization. To do this, government must:
• close the deficit through spending reductions,
• improve tax revenue, however, more weight is on managing spending
• implement reforms to achieve higher levels of economic growth.

Mr V Tshabalala (ANC, Free State) asked about the monetary value of the repayment of the current debt. The National Health Insurance (NHI) aims to make services more affordable yet its activities have been suspended. How did it reach this point? He requested clarity on the change in balances to provinces. How will the budget affect the township economy?

Ms Moahloli replied that the almost R4 trillion debt is not grants and needs to be serviced quarterly or annually. Interest and the capital amount needs to be paid, which is the debt service cost. At the end of repayment, there is the redemption payment. The biggest driver of debt service cost is the budget deficit. Other drivers are changing interest rates, the currency composition, inflation and the country’s risk premium.

Mr N De Wet (FF+, North West) asked how it is still possible to finance the Land Bank when it borrows at a higher rate and lends out at lower rate? The R3 billion allocation seems like postponing the financial distress of the SOE.

The Minister replied that Treasury is committed to the revitalisation of the Land Bank hence the R3 billion support package. However, Land Bank management and board of directors must work with Treasury to create a bank that supports agriculture in South Africa.

Mr William Mapena, eThekwini Councillor, stated that local government welcomes the presentation. He raised concerns around the decline in revenue collection from municipality rates, the suspension of conditional grants and the multi-year wage settlement. He suggested the Ministry consider following:
• SALGA’s view of under-recovery as the basis for allocation which should consider not just metros.
• An urgent review of fiscal reform for local government to include the impact of COVID-19 on municipalities.
• For the Local Government Equitable Share (LGES) formula to portray realistic cost differences in municipalities, to address local government underfunding.
• The October Budget must consider the revenue reduction and how this impacts service delivery.

Mr Z Mkiva (ANC, Eastern Cape) asked if it is not an opportune time to establish the state bank the ANC asked for. The huge amounts of money being transferred are benefitting private commercial banks. The IMF is a ruthless instrument of imperialism and he asked if it is government’s first option.

Minister Mboweni replied that the gap is financed from domestic borrowings, global bonds and if these are not enough, then government goes to international development finance institutions. Government has sought to approach the BRICS bank, AfDB, New Development Bank (NDB) and the IMF. Historically, the IMF has put many countries in difficulties and has been labelled as problematic by the progressive left. Government has applied to borrow US$4.2 billion from it, and it is not based on conditionalities.

The Minister agreed that if there was a state bank system it would be useful at the moment. There are many state banks in South Africa such as Ithala, Limpopo Development Corporation and Land Bank and a quasi-state bank such as the African Bank. The concern is whether the state banks are able to fulfil mandates.

Mr Shivambu said that Members are speaking of a bank as recognised by the Banks Act, not the financial institutions the Minister mentioned.
 
The Deputy Minister replied the intention with the state bank is to consolidate the state banks like Ithala and quasi-banks to become a consolidated deposit-taking bank. This will reduce the number of entities out there. It will be a state bank targeting the 'missing middle' and small, medium and micro enterprises (SMMEs). Treasury will present its views on this to Cabinet and return to report to the Committees.

Mr Y Carrim (ANC, KwaZulu-Natal), Select Committee on Finance Chairperson, announced that Treasury will be returning on Friday 3 July and the concerns raised by Members will be placed on the agenda.

Mr D Ryder (DA, Gauteng) requested the current account deficit at the moment. What is the state of government bonds since the Moody’s downgrade, in terms of yields and subscriptions?

The Minister replied that imports and exports have been affected by the pandemic and reflects on the balance of payments. Members can have an educated guess on the likely outcome of the balance.

Ms Moahloli replied that both local and foreign currency bond yields have increased. The bonds did decrease slightly after the Moody’s downgrade and the shock was absorbed by the market. To date there has been R58 billion of outflows from non-residents who participate in the local bonds auction. There has been improved secondary market liquidity, which has increased the ease of trading bonds. There is relative stability in the secondary market. Global risks play a role in the yields. Subscriptions vary from auction to auction, however, the subscription rates have been lower due to the impact of the pandemic and the downgrades.

Mr Shivambu requested a clear plan and timeline for the state bank. The idea of using a zero-based budget to contain the debt crisis does not make sense and he asked Treasury from where it gets this idea. What is the Minister referring to in implementing structural reform?

Mr Hill-Lewis stated that during the meeting, Moody’s released a note in response to yesterday’s budget announcement, in which it thinks “it is unlikely that debt stabilization is to be achieved by 2023”. Does the Minister agree that the active scenario is not likely considering that such little economic reform has taken place to date? If the country has entered into a crisis with inadequate fiscal buffers then it is Treasury and the Minister who are accountable for that. Is there a firm irrevocable cast in stone commitment that government will achieve stabilisation by 2023 or is it just a wish?

Minister Mboweni replied that Treasury will have a debate with Moody’s and hear what it has to say. There is a commitment to achieve debt stabilisation by the communicated date, on behalf of the executive. He pointed out that this commitment was made having honoured his oath of office.

Mr Carrim, Select Committee on Finance Chairperson, remarked that the Minister and his Treasury team are in a difficult position in unprecedented times. He remarked that Treasury is doing well and thanked the Minister for the expanded team and the new and young faces that have been brought in. The Committees are not opposed in principle to approaching the IMF in the current circumstances. However, the Committees are concerned about other new conditionalities that might surface and dollar-denominated loans. He agreed that the state bank should be put on the agenda. He requested a clearer economic framework within which much of this is communicated. He proposed that Members reconsider how the Committees conduct meetings which is currently a shopping list approach of raising questions and responses. How the debate process is managed must be reviewed.

Closing remarks
Mr Maswanganyi, Standing Committee on Finance Chairperson, remarked that the Minister should indicate when the economic recovery plan will be available. He requested that SMME invoices be paid on time and that departments be held accountable for this. He announced that on 8 July, there will be a consideration of the revised fiscal framework. On 15 July, the National Assembly will consider the division of revenue. On 22 July, the National Council of Provinces (NCOP) will consider the division of revenue. Thereafter, the budget will be referred to the NA Committees. From 21-24 July, there will be mini-plenaries in the NA. On 29 July, the NA will consider the adjustments appropriation.

In closing, he thanked everyone and adjourned the meeting.

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