* South Africa is the African nation hardest hit by the pandemic
* Faced with more variants of COVID-19 infection but vaccinations lagging behind
* The pandemic has worsened the fiscal situation (adds Finance Minister, market reaction, more details)
By Olivia Kumwenda-Mtambo and Mfuneko Toyana
CAPE TOWN, Feb. 24 (Reuters) – South Africa could spend up to 19.3 billion rand ($ 1.33 billion) over the next three years to vaccinate most of its population, said Wednesday the Treasury, in a “difficult balance” intended to contain COVID-19 while avoiding a spiral of debt.
The fiscal position of South Africa, which is the African country hardest hit by the pandemic, was already weak before the coronavirus crisis and has deteriorated sharply over the past year, according to the 2021 budget presented. in parliament.
The deficit is expected to more than double to 14% of gross domestic product (GDP) in fiscal year 2020/21, from 5.7% the previous year.
The Treasury said a mass vaccination program would help boost GDP growth to 3.3% this year after a severe 7.2% contraction in 2020.
“This year we are facing an exceptionally difficult balancing act,” the Treasury said.
“On the one hand, a raging pandemic … on the other, a weak economy, with massive unemployment, which is burdened by troubled public enterprises, the highest budget deficit in our history and a growing public debt. rapid growth.”
The rand hit a 13-month high and bonds rallied after the budget announcement.
The Treasury has lowered its estimate of medium-term gross debt, but it remains relatively high – projected to 87.3% of GDP by 2023/24, from 92.9% estimated in October.
“Certainly, compared to last October, we are in a better situation. But our assessment (…) still holds: our public finances are dangerously overloaded”, declared the Minister of Finance, Tito Mboweni, to the legislators.
Africa’s most advanced economy is battling a more infectious variant of the coronavirus, but richer countries have fallen behind in launching their vaccination campaign.
He now plans to step up vaccinations after administering the first doses of Johnson & Johnson’s vaccine last week.
The government plans to vaccinate 40 million people, or two-thirds of the population.
The budget allocates R 1.3 billion for vaccine purchases in the current fiscal year, which ends next month, while R 9 billion is earmarked for medium-term deployment.
“Given the uncertainty surrounding the final costs, it is estimated that R 9 billion could be drawn from the contingency reserve and emergency allocations, bringing the total potential funding for the immunization program to around R 19.3 billion. rands, ”the Treasury said.
MASS WAGE RISK
To support the economy, the Treasury did not provide additional tax revenue in the medium term, removing previously proposed tax measures of 40 billion rand.
Mboweni said the corporate tax rate will be reduced to 27% effective April 1, 2022, from 28% currently.
The Treasury has also planned to reduce local currency bond issuance as it uses more of its existing cash balances.
To increase revenue, fuel taxes will increase by 27 cents per liter, while an 8% increase in excise taxes on alcohol and tobacco products would be implemented.
The Treasury said efforts to reduce the civil service wage bill remained on track.
The civil servant pay freeze put the government on a collision course with public sector unions, which challenged in court the government’s non-payment of increases in April, as agreed in a 2018 wage deal. Labor appeals court ruled in December in favor of the government.
The Civil Servants Association said last month it is challenging the ruling in the Constitutional Court.
“The biggest risk remains the payroll, which has yet to be negotiated. This is where we have the least hope,” said Danelee Masia of Deutsche Bank.
Mboweni said the government is working to achieve fair public sector pay when negotiations with unions on a new multi-year wage deal begin later this year.
Adding to the pressure on spending, the budget allocated R31.7 billion to struggling utility Eskom for 2021/2022, while the Land Bank, which supports farmers, received R5 billion in 2021/22 and R 1 billion in each of the following two years. (Additional report by Wendell Roelf in Cape Town Editing by Joe Bavier and Giles Elgood)