South African Treasury Sees Substantial Revenue Shortfall Due to Virus

(Bloomberg) --

South Africa’s National Treasury expects a “substantial” shortfall in revenue collections due to the impact of the coronavirus pandemic on economic activity, compared with forecasts in its February Budget Review.

“At this early stage of the fiscal year, estimating the impact of the pandemic on fiscal revenue for 2020-21 is challenging,” the National Treasury said in a document published on its website Thursday. “What is certain is that there will be a substantial shortfall compared to the revenue forecasts at the time of the 2020 budget, both due to reduced revenue from economic weakness and from the estimated 26 billion rand ($1.4 billion) in additional tax-relief measures”

Its revenue-collection estimate for the fiscal year through March 2021 was 1.43 trillion rand in the Feb. 26 budget. While it has yet to update its forecasts, the tax take could fall by 32%, Finance Minister Tito Mboweni said in a conference call with clients of Goldman Sachs Group Inc. last week.

A ban on the sale of alcohol and tobacco products during the nationwide lockdown aimed at curbing the spread of the virus has already led to an under-recovery of 1.56 billion rand, Edward Kieswetter, the commissioner of the South African Revenue Service, told lawmakers Thursday.

Before the pandemic, Africa’s most industrialized economy was already stuck in the longest downward cycle since at least World War II, with business confidence at the lowest in more than two decades and almost a third of the labor force unemployed. Output is also weighed down by power-supply constraints. Eskom Holdings SOC Ltd., which generates about 95% of South Africa’s electricity, regularly implements rolling blackouts to prevent a collapse of the national grid.

The Treasury will monitor real-time economic indicators including activity through the national payments system, electricity demand and employee tax returns to better inform economic and revenue estimates, it said.

Mboweni is due to table an adjustment budget, which will include the reprioritization of 130 billion rand of spending to help finance a 500 billion-rand stimulus package. The country is counting on accessing 95 billion rand from the International Monetary Fund, World Bank and New Development Bank to counter the impact of the virus.

©2020 Bloomberg L.P.

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