South African Budget Deficit Balloons to Biggest in 28 Years
South African Budget Deficit Balloons to Biggest in 28 Years
A sharp slowdown in South Africa’s economic growth and mounting demands for support from financially distressed state-owned companies will result in the highest budget deficit in a generation.
The shortfall as a percentage of gross domestic product is forecast to expand to 6.8% in the fiscal year through 2021, according to the National Treasury’s annual Budget Review. The figure is the highest since 1992-93, when the gap was 7.2%, and compares with a forecast of 6.5% in October, Treasury data shows.
Key Points
- The Treasury ruled out achieving a proposal set out in its October medium-term budget of achieving a main budget primary balance by 2022-23. “This target is now out of reach, and debt is not expected to stabilize over the medium-term,” the Treasury said.
- Gross government debt is projected to increase to 71.6% of GDP by 2022-23, compared with 71.3% forecast in October.
- GDP is forecast to expand 0.9% this year, 1.3% in 2021 and 1.6% in the following year. The projections are all lower than those envisaged in October, when they were 1.2%, 1.6% and 1.7% respectively. The economy probably expanded 0.3% last year, the Treasury said.
- With slower growth, revenue estimates have been reined in. The government expects to raise 1.58 trillion rand ($103 billion) of income in the coming year, 1.68 trillion rand in 2021-22 and 1.79 trillion in 2022-23. Those estimates are all down by between 2.1% and 2.7% from October.
- “To contain the budget deficit and move towards debt stabilization, the 2020 budget proposes a significant reduction in government expenditure growth, mainly as a result of lower growth in the public-service wage bill,” the Treasury said. Reductions in compensation are envisaged at 37.8 billion rand in 2020-21, 54.9 billion rand in 2021-22 and 67.5 billion rand in 2022-23.
- Total spending is forecast at 1.95 trillion rand in 2020-21, down 1.2% from the October estimate, and 2.04 trillion rand and 2.14 trillion rand in the subsequent two years, representing declines of 2.7% and 3.3% respectively from four months ago.
--With assistance from Ana Monteiro.
To contact the reporters on this story: Paul Richardson in Johannesburg at pmrichardson@bloomberg.net;Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net
To contact the editors responsible for this story: Benjamin Harvey at bharvey11@bloomberg.net, Robert Brand, Rene Vollgraaff
©2020 Bloomberg L.P.