Markets will be watching closely to see how far the economy is expected to fall and how high the deficit and public debt projections will climb when finance minister Tito Mboweni tables his "emergency" budget on Wednesday.
The Treasury team will have had to revise the figures sharply for the worse just four months after February's budget - as well as find the money to pay for the Covid-19 relief that government has promised - at a time when tax revenue could fall up to R300bn short of February's projections and the government is spending more and more to service its ever-increasing debt burden.
Mboweni will be looked to for clarity on whether he will allocate more money to the failed SAA, as well as to other state-owned enterprises such as the Land Bank that have approached the Treasury for funds. And with unions and the government still at odds over pay increases, he will have to make a call on whether the R37bn saving on this year's public-sector payroll he had budgeted for in February will materialise.
Briefing Nedlac on Friday ahead of the budget, Mboweni said substantial fiscal measures were required to ensure stability and avoid a debt crisis. He warned that government spending had now overtaken investment as a share of GDP, with much of this increase driven by the public sector wage bill, squeezing out goods and services spend. SA's economic recovery plan would focus on competitiveness and exports and would have to involve "serious reform of state-owned enterprises", especially in industries such as transport.
Economists expect, however, that the Treasury's economic and deficit projections will not be as dire as those of many private sector forecasters - and that the outcome for this year may ultimately prove to be even worse than the revisions from Mboweni.
Wednesday's special adjustment budget comes a day after the presidency's Sustainable Infrastructure Development Symposium, which aims to attract privately funded infrastructure investment to support SA's economic recovery.
With little scope for further tax hikes in a deeply depressed economy, economists expect that the budget deficit for the current fiscal year (2020/2021) could be more than double February's 6.8% estimate. That implies the government will have to borrow at least R200bn more than it had projected - at interest rates that are costly, especially on longer-term bonds.
The Treasury said in a report in April that R95bn of the extra funding for the Covid-19 package would come from development finance institutions, including the International Monetary Fund (IMF). The IMF's head of mission in SA, Montfort Matjila, confirmed this week that SA had applied formally to draw about $4.2bn (R72.8bn) under the IMF's Rapid Financing Instrument. The money would be available immediately on board approval, he said, but the board date had not yet been set as "discussions are ongoing".
Much of the rest of the extra funding will have to come from the market, raising concerns about cost and availability, particularly after foreign investors pulled R100bn out of SA's bond markets as the lockdown began, prompting the Reserve Bank to intervene to stabilise the market.
The Bank has bought more than R20bn of government bonds since March but has come under pressure to do even more to finance the government's deficit, as central banks in advanced countries have done with "quantitative easing programmes".
But Reserve Bank governor Lesetja Kganyago made it crystal clear this week that the Bank was not about to finance the deficit, warning that SA was already running "crisis-level deficits" and debt was on a rising trajectory before the Covid shock hit, and that SA had to stabilise its debt-to-GDP ratio and make the debt sustainable. In a virtual public lecture at Wits University on Thursday, Kganyago said some were proposing the Bank buy more or less all new government debt for the foreseeable future, which would crowd pension funds and other institutional investors out of the bond market.
"Worse, we would be sending a dangerous signal," he said, warning this would put the Bank's credibility at risk and ultimately risk higher inflation and interest rates.
Citi economist Gina Schoeman said SA's institutional strength, which was five notches above its fiscal strength on rating agency metrics, was what attracted foreign investors and this was based on the Reserve Bank's "playing hardball" on inflation.
Bureau for Economic Research economist Hugo Pienaar said GDP could contract by 9.5% this year and the main budget deficit could go as high as 16% of GDP, though he expects the Treasury's growth forecast to be closer to the Reserve Bank's minus 7.1%.
Schoeman expects a 14.6% deficit-to-GDP ratio, with the economy contracting by 9% in 2020. She estimates the government's borrowing requirement to go up to R705bn in the current year, from February's estimate of R433bn.
