South African budget deficit is the 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 February 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 R1.58 trillion ($103 billion) of income in the coming year, R1.68 trillion in 2021-22 and R1.79 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 stabilisation, 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 R37.8 billion in 2020-21, R54.9 billion in 2021-22 and R67.5 billion in 2022-23.

Total spending is forecast at R1.95 trillion in 2020-21, down 1.2% from the October estimate, and 2.04 trillion and R2.14 trillion in the subsequent two years, representing declines of 2.7% and 3.3% respectively from four months ago.

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South African budget deficit is the biggest in 28 years