The budget deficit for the 2018/19 financial year is expected to widen to 4.3 % of the Gross Domestic Product (GDP) – which is higher than the 2018 Budget estimate of 3.8 %.
According to the National Treasury’s Medium Term Budget Policy Statement, this is mainly as a result of tax revenue shortfalls.
“Over the next two years, higher debt service costs and transfers from the Southern African Customs Union (SACU) agreement, and lower revenue, widen the main budget deficit by an average of 0.6 % of GDP.”
The National Treasury said the primary balance – the difference between revenue and non-interest spending – narrows over time, stabilising at 0.2 % of the GDP in 2021/22.
The National Treasury said, meanwhile, that the cost of servicing government debt is expected to exceed 2018 Budget estimates by R1 billion in 2018/19, R4.9 billion in 2019/20 and R7.9 billion in 2020/21.
“This reflects a larger main budget deficit, currency depreciation and higher interest rates. An estimated 15.1 % of main budget revenue will be used to service debt in 2021/22 compared with 13.9 % in 2018/19.”
Government’s debt management strategy
The National Treasury said government’s debt management strategy is informed by strategic risk benchmarks for interest, inflation, the currency and refinancing.
“This ensures that the debt portfolio can accommodate changes in the fiscal stance and minimise debt-service costs and refinancing risk.
“In recent years, government has lengthened the debt maturity profile and successfully managed refinancing risk in the long-term debt portfolio. The longer maturity profile allows government to consider increased issuance in the 5- to 10-year maturity bracket to reduce debt-service costs,” the National Treasury said.
The Medium Term Policy Statement, tabled in Parliament by Finance Minister Tito Mboweni on Wednesday, also pointed to the fact that gross loan debt is expected to increase from R2.8 trillion or 55.8 % of GDP in 2018/19 to R3.7 trillion or 58.5 % of GDP in 2021/22, mainly to finance the budget deficit.
Fluctuations in inflation, interest and exchange rates since the 2018 Budget also affected debt.
“The weaker rand accounts for about 70 % of the R47.6 billion upward revision to gross loan debt in the current year. Debt is expected to stabilise at 59.6 % of GDP in 2023/24 – at a higher level and a year later than projected in the 2018 Budget.
“Net debt – gross loan debt minus cash balances – stabilises at 56.5 % of GDP in 2025/26.”