South Africa boosts vaccine spending

26 February 2021 | Economics

Olivia Kumwenda-Mtambo and Mfuneko Toyana

South Africa could spend up to R 19.3 billion (US$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 forecasted to reach 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 rand scaled a 13-month peak and bonds rallied after the budget was announced.

Pressure

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 estimated 92.9% in October.

"Certainly, compared to last October, we are in a better place. But our assessment still stands: our public finances are dangerously overstretched," Finance Minister Tito Mboweni told lawmakers.

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 vaccinations after administering the first doses of Johnson & Johnson's shot last week.

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. - Nampa/Reuters