Government to spend R20 billion on vaccines roll-out

Finance Minister Tito Mboweni warned yesterday that it would cost the government at least R20 billion to fund the country’s Covid-19 vaccine programme as its fiscal position has deteriorated sharply.

Mboweni said that public finances remained dangerously overstretched and it was incorrect to suggest that the government was “swimming in cash” because of the recent increase in tax revenue over the last quarter. He told Parliament that the 2021 Budget was funding a massive Covid-19 vaccination campaign while exercising continued restraint on spending growth.

Mboweni said the government had allocated R1.3 billion this year for vaccine purchases, which would increase to R9 billion over the medium term. “We are allocating more than R10 billion for the purchase and delivery of vaccines over the next two years,” he said. Mboweni said that funding for procurement and rollout of the vaccines would be drawn from the national budget to avoid more government borrowing which could cause a debt spiral.

He said, however, that revenue would return to the fiscus when private providers buy vaccines from the state since the government was procuring vaccines on behalf of both the public and private sectors. The 2021 Budget proposes a total consolidated spending of R2.02 trillion in 2021/22 against revenue projection of R1.35 trillion, or 25.3 percent as a share of GDP in 2021/22.

At least 56.8 percent of spending allocations will be going to learning and culture, followed by health and social development. Non-interest spending, however, is forecast to remain steady at approximately R1.56trln over the next three years. The Covid-19 pandemic and the procurement of vaccines has exerted upward pressure on government spending to shore up the economy over the past year.

Mboweni said the government’s gross loan debt is expected to increase from R3.95 trillion, or 80.3 percent of gross domestic product (GDP), in 2020/21 to R5.23 trillion or 87.3 percent of GDP, by 2023/24, down from a projected 95.3 percent of GDP estimated last year.

“Our borrowing requirement will remain well above R500 billion in each year of the medium term despite the modest improvements in our fiscal position,” he said. “We owe a lot of people a lot of money.” Debt-service costs are expected to increase at an alarming annual average rate of 13.3 percent, and rise from R269.7 billion this year to reach R338.6 billion in 2023/24.

Mboweni also indicated that the country would also be dipping into the contingency reserve – which was bolstered from R5 billion to R12 billion – and emergency allocations for an additional R9 billion funding, given the uncertainty around the vaccines final costs. This would bring the potential funding for the programme to about R19.3 billion in total over three years. Mboweni said that other cost pressures will be funded through a combination of reallocations and reprioritisations over the medium-term expenditure period.

He said the government projected underspending in national departments and certain State-owned enterprises (SOEs) to offset spending additions mainly for rollout of Covid-19 vaccines and the extension of the special Covid19 social relief of distress grant. For one, the government will reduce capital transfers to the Passenger Rail Agency of SA by R5.4 billion over the medium term to allow for the use of existing capital funds at the troubled SOE.

Over the same period, the government will also cut the social grants budget by R36 billion, beginning by a reduction of R5.8 billion this year as grant values will increase by less than inflation. The government will also reduce compensation spending on health by about R50.3 billion over a three-year period, urging health departments to increase efficiency by generating savings and improving management of overtime costs.

Cost reductions have also been anticipated in the safety and security cluster departments as compensation of employees will decrease by R64.7 billion over the medium term, implying a reduction in personnel. South Africa’s economic rebound of 3.3 percent has been pegged on the successful rollout of vaccines as economic growth outlook remains highly uncertain after GDP contracted by an estimated 7.2 percent on Covid-19 pandemic.