South Africa boosts vaccine spending in ‘balancing act’ amid debt worries

South Africa could spend up to 19.3 billion rand ($1.33 billion) over the next three years to vaccinate most of its population, the Treasury said on Wednesday, in a “difficult balancing act” meant to contain COVID-19 while avoiding a debt spiral.

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 to parliament.

The deficit is forecast to more than double to 14% of gross domestic product (GDP) in the 2020/21 fiscal year, from 5.7% in the previous year.

The Treasury said a mass vaccination programme would help spur GDP growth to 3.3% this year following a severe contraction of 7.2% in 2020.

“This year we face an exceptionally difficult balancing act,” the Treasury said.

“On one side is a raging pandemic … on the other side is a weak economy, with massive unemployment, that is burdened by ailing state-owned companies, the highest budget deficit in our history and rapidly growing public debt.”

The Treasury lowered its gross debt estimate over the medium term, but it remains relatively high – projected at 87.3% of GDP by 2023/24, compared with an estimate of 92.9% in October.

Africa’s most advanced economy is battling a more infectious variant of the coronavirus but has lagged wealthier nations in launching its immunisation campaign.

It is now planning to step up its vaccination programme, however, after administering the first doses of Johnson & Johnson’s vaccine last week as part of a research study.

The government plans to vaccinate 40 million people, or two-thirds of the population.

The budget allocates 1.3 billion rand for vaccine purchases in the current fiscal year, which ends next month, while 9 billion rand is earmarked for the roll-out over the medium term.

“Given the uncertainty around final costs, an estimated 9 billion rand could be drawn on from the contingency reserve and emergency allocations, bringing total potential funding for the vaccination programme to about 19.3 billion rand,” the Treasury said.

To support the economy, the Treasury did not pencil in any additional tax revenue over the medium term, withdrawing previously proposed tax measures of 40 billion rand.

The government is also facing growing needs from struggling state-owned companies such as power utility Eskom.

The budget allocated 31.7 billion rand to Eskom for 2021/2022 while Land Bank, which supports farmers, was allocated 5 billion rand in 2021/22 and 1 billion rand in each of the two subsequent years.

The Treasury said efforts to cut the public service wage bill remained on course. – reuters.com