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2020 supplementary budget: The road map to the revival of the economy

29 June 2020 | Story Edward Kagiso Molefe and Dr Nico Keyser

Molefe and Kesyer_web read more — Edward Kagiso Molefe, left, and Dr Nico Keyser.

The 2020 supplementary budget comes at a time when the ongoing COVID-19 pandemic is causing widespread disruption in the world’s economy and continues to affect it negatively. Even though the precise economic and social consequences of the pandemic still remain uncertain, there is prevalent agreement between economists and policy makers that it will leave the world overwrought with the uncertainties of the future. According to the International Monetary Fund, the world economy is expected to contract sharply by 5,2% this year, due to the huge lockdown to curtail the spread of the COVID-19 pandemic. The South African economy is also expected to contract by 7,2% in 2020, and according to the Minister of Finance, Tito Mboweni, this is the largest contraction in almost 90 years. Therefore, the South African government currently finds itself in an unfortunate and restricted fiscal position. Minister Mboweni does not have much room to move within his emergency budget and therefore calls for a pragmatic approach, the reprioritisation of expenditure, and the implementation of austerity measures within the public sector and its state-owned enterprises (SOE).

Zero-based budgeting

However, the country should be applauded for responding to this economic shock with a set of unmatched measures. The Minister further highlighted that, for the first time in history, all stakeholders – including the private sector, labour, communities, and the central bank – participated in responding to the storm that came without an early warning system. This has proven the validity of the long-sung gospel that by working together, we can do more. R500 billion of government’s COVID‐19 economic support package was directed straight at the problem. Against the background of ongoing measures to address the pandemic in South Africa, the Minister’s supplementary budget of 2020 stressed several key aspects:

The first burning issue addressed in the supplementary budget was the mounting debt-to-GDP ratio, which is envisaged to reach 80,5% in this fiscal year, as compared to a projection of 65,6% in February. Although the Minister has confirmed strategies to curtail the debt and widening deficit, no sign of stabilisation was presented. South Africa continues to experience contracting revenue and is relying extensively on loans from international sources, since savings is a non-starter. The Minister has also called for zero-based budgeting as one of the strategies in building a bridge to recover, and to close the mouth of the ‘hippopotamus’, which is eating our children’s inheritance. The zero-based budgeting is a big step in the right direction; it will make all role players in government understand the economic crisis we are facing.

Prioritising infrastructure development

The other positive part of the supplementary budget was the prioritisation of infrastructure development. The South African government has already considered almost 177 infrastructure projects that will assist in boosting the economy and curtailing unemployment. The Sustainable Infrastructure Symposium, hosted by President Cyril Ramaphosa, announced 55 projects that are ready to be rolled out in due course. Government needs to further stimulate its partnership with the private sector to ensure more infrastructure development and job creation. Infrastructure development will also ensure jobs for the unskilled labour force, which makes up the largest part of our unemployment.

In terms of job creation, an economic support package of R100 billion has been set aside for a multi-year, comprehensive response to our job emergency. Moreover, the President’s job creation and protection initiative will be rolled out over the medium term. This will include a repurposed public employment programme and a Presidential Youth Employment Intervention. The country is looking forward to further details regarding this presidential initiative, particularly with regard to the Presidential Youth Employment Intervention, as the youth is the future of this country.

Despite the envisaged revenue adjustment of R1,43 trillion to R1,12 trillion, the country is expected to continue spending. An additional R21 billion is allocated for COVID‐19‐related health-care spending. The supplementary budget has also proposed a R12,6 billion allocation to front-line services. An additional R11 billion is set aside towards improved water and sanitation, and an additional R6,1 billion for youth employment ensures that the most vulnerable are supported. However, the effectiveness of this allocation in the supplementary budget is sorely dependent on the ability of our government apparatus to spend the money.

Opening the economy

The only worrying issue that the minister did not dwell on much, was the public sector wage bill, which still remains a challenge. According to the Minister, nearly half of the consolidated revenue will go towards the compensation of public service employees. The compensation of employees continues to put much pressure on service delivery and is pushing government in the direction of borrowing. On the other hand, the government of South Africa is still under pressure to implement the 2020 salary adjustments. However, the question still remains why the South African government is not considering the same process as the private sector or finding an alternative way of setting salaries at an appropriate, affordable, and fair level. This could save government money to focus on other areas that require financing, such as debt-service costs.

What remains evident and feasible is that South Africa should continue opening the economy to revive sectors hit hard by the great lockdown. Allowing trade to take place, doing business, and markets to function would provide the ultimate boost to a struggling economy. A reduced role by government could pave the way for the private sector to play a larger role in the economy. Moreover, structural reforms are required to create a favourable environment for growth and to restore South African fiscal credibility.

Opinion article by Edward Kagiso Molefe, Lecturer: Department of Economics and Finance, and Dr Nico Keyser, Head of Department: Economics and Finance

News Archive

Important message to UFS students on NSFAS and financial aid in general

2013-02-01

31 January 2013

Dear Students

There remains some uncertainty as well as misinformation within the student body concerning NSFAS and financial aid in general. This communication is intended to provide the facts on the state of student funding at the University of the Free State (UFS). I hope you find this information helpful and that it would guide you in your decisions as you wait to hear from, or hopefully receive funding from NSFAS or any other source.

Every year the Department of Higher Education and Training (DHET) determines how much funding is available to fund students at all universities in South Africa; this is determined in part by the student numbers. Universities do not ask for, or determine the DHET allocation and are instructed by government that “NSFAS will ensure that the universities comply with the processes, procedures…for the allocated funds.”
On 14 December 2012 the UFS received notice from the DHET that our total allocation would be R108,331,215.66 and that this amount must be apportioned in the following categories:
General NSFAS Funding R85,174,275.07
Teacher Training R2,291,940.59
Disability Funding R1,265,000.00
Final-Year Programme R19,600,000.00
The UFS received 5 952 applications for NSFAS funding and with the available funding we can only finance up to 3 000 students on the Qwaqwa and Bloemfontein Campuses, provided that those students satisfy the stringent criteria, e.g. the so-called “national means test” determined for all universities in the country. If we funded more students that the available monies allow, the university would be held accountable by the NSFAS Board and the DHET and this would threaten future funding.
Students apply in the previous year and therefore late applications are less likely to receive funding.
Academic merit also counts, therefore students who fail one or more modules are less likely to receive new or ongoing support from NSFAS. The combination of academic standing and financial need are among the important criteria in decision-making on NSFAS funds.
The UFS is one of the few universities with a very efficient record in using every cent made available to support poor students; we are proud of this record. No money is sent back to NSFAS, except small amounts not claimed by students in the disability category. The university is not allowed to shift funds between categories as described in point #2 above.
Allocations are not based on campus, but need.
The UFS sets aside an additional R35,7 million (in 2013) from within its own budget as bursaries so that we can accommodate as many students as possible. We spend every cent of this funding on students.
The UFS also raises millions in bursaries from the private sector to support poor and promising students, though these funds are often linked to the industry granting the money, e.g. Investec for Accounting students and SASOL for Chemistry students. This recruitment of bursaries is a 24/7 commitment of the Marketing Office and the Faculties and Heads of Departments are also active in raising funds from government agencies, parastatals and the private sector for students in their units.
After almost all our 2013 funds were allocated in favour of students, we calculated a shortfall in the NSFAS allocation of approximately R51 million. We are in the process of making an urgent submission to NSFAS to consider this additional allocation, but we cannot guarantee that this plea can or will be met.

Finally, I want all our students to know that the University of the Free State works very hard to raise every cent we can to provide poor students with funding for their studies. Many of my colleagues, including support staff, who do not earn very much, use some of their meagre personal resources to help a student with money for registration or clothing or food. In fact, the No Student Hungry Campaign that raises more than R600,000 by UFS volunteers annually, is another mechanism for trying to assist students who might have money for studies, but not much else.

We do this because we care, and because this is what The Human Project at Kovsies is all about.

I therefore ask for your patience as we continue our labour of raising the funds that enable every deserving student to continue their studies at the University of the Free State.

Should you have any further questions about NSFAS, please leave an email inquiry on choanet@ufs.ac.za or mallettca@ufs.ac.za and we will endeavour to provide you with the information you require.

Sincerely Yours

Jonathan D Jansen
Vice-Chancellor and Rector
University of the Free State

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