Mboweni finds more money for Land Bank in tight budget

Mboweni finds more money for Land Bank in tight budget
Finance Minister Tito Mboweni tabled the Medium Term Budget Policy Statement in Parliament at the end of October. Photo: GCIS
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South Africa is deeply indebted and economic growth is expected to contract even more than initially anticipated.

This bleak outlook was presented to South Africans by Finance Minister Tito Mboweni when he tabled the Medium-Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, 28 October.

READ SA must take a ‘bold step’ towards fiscal sustainability

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With the economic impact of COVID-19 having been more significant than expected, Mboweni said South Africa’s economy was now expected to contract 7,8% this year, and the 2021 outlook was even more uncertain.

Mboweni pointed out that South Africa’s debt was expected to rise from roughly R4 trillion this year to R5,5 trillion by 2023/2024, and government was currently borrowing at a rate of R2,1 billion per day.

“With mounting debt and interest payments that now consume 21c of every rand of main budget revenue, the public finances face the risk of a debt spiral. Stabilising debt to avoid such a crisis will involve significant expenditure reductions across government,” the MTBPS said.

In his speech, Mboweni proposed reducing government spending over the next three years.

Expenditure would decrease by R62,9 billion in 2021/2022, R92,9 billion in 2022/2023, and R150,9 billion in 2023/2024. Government’s wage bill would reflect most of these decreases.

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To further assist with consolidation, tax increases of R5 billion in 2021/2022, R10 billion in 2022/2023 as well as in 2023/2024, and R15 billion in 2024/2025 were also projected.

Mboweni announced in his speech that the R3 billion that was allocated to the Land Bank in June would be supplemented with an additional allocation of R7 billion over the medium term to support the bank’s restructuring.

Chris Potgieter, managing director of Old Mutual Wealth Private Client Securities, said that the continued lifeline extended to the Land Bank was welcomed by South African investors.

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“Apart from the key role the Land Bank plays as primary funder to agriculture, many South African money market and income funds are exposed to Land Bank credit. Fixed-income investors (for example, retirees) therefore also rely on the continued functioning of the Land Bank,” Potgieter said.

TAU SA president Henry Geldenhuys expressed the organisation’s concern about Mboweni’s economic plans.

“The economy can only be built up again if the private sector is allowed to provide momentum, and not by continuing to create an unfavourable investment climate,” he said.

Geldenhuys pointed out that the agriculture sector needed R10 billion to start the next production season, but said he was not convinced that the Land Bank would be able to fulfill that role timeously.

“Even after the initial lifeline of R3 billion for the Land Bank, it could still not produce the desired results. The funds are not being channeled in the form of input costs for farmers.”

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