Highlights of South Africa’s 2020 Medium-Term Budget

(Bloomberg) --

Below are the highlights of South Africa’s 2020 medium-term budget policy statement presented by Finance Minister Tito Mboweni in Cape Town on Wednesday.

• State debt climbs, stabilizing in five years - achieved mainly through a freeze in state-worker pay
• Government debt surges, with forecasts exceeding those in the June adjustments budget
  • Gross debt is set to peak at 95.3% of GDP in 2025-26, from 81.8% this year
  • That’s higher than the 87.4% peak that Mboweni predicted in June reached in 2023-24, albeit as the best-case scenario. The projections are well off the “active scenario” that the minister spoke of then
  • “The probability of a debt trap – in which rising debt-service costs are increasingly paid from additional borrowing – has increased,” Treasury says in the budget statement
  • Debt service costs seen at 18.3% of spending in 2023-24 compared with 12.9% now
• The budget deficit narrows after this year’s jump
  • Treasury sees the consolidated gap at 15.7% of GDP this year (the same as was predicted four months ago)
  • It then narrows to 10.1% next year and 7.3% by 2023-24
  • Tax collection is seen 8.7 billion rand less than the June projection
  • Treasury estimates tax increases of 5 billion rand in 2021-22, while acknowledging that the scope for raising taxes may be exhausted as evidence suggests they have a negative impact on economic growth
  • The focus will be on reducing spending, with expenditure savings of 300 billion rand over three years compared with previous budget projections
  • The bulk of that is from the state wage bill through a pay freeze for this year and the next three
• The expected economic contraction for this year is 7.8%. That’s a bigger decline than forecast in June but still less than the central bank’s estimated 8.2% drop
  • Expansion is seen at 3.3% next year and 1.7% in 2022
• Financing needs ease after this year
  • The national government borrowing requirement declines to 602.9 billion rand in 2021-22 from 774.7 billion rand
  • Government doesn’t anticipate increasing auction levels this year, will continue with bond-switch program
• South African Airways gets another 10.5 billion rand to help it restart, with the money being taken from other state departments
  • Support for Eskom is reduced by 4.2 billion rand over the medium term

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