Wider deficit, lower growth forecast for SA

South Africa's finance minister, Pravin Gordhan. Picture: Linda Mthombeni

South Africa's finance minister, Pravin Gordhan. Picture: Linda Mthombeni

Published Oct 26, 2016

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Cape Town - South Africa's Treasury on Wednesday widened its budget deficit forecast for the 2016/17 fiscal year to 3.4 percent of GDP from 3.2 percent previously, saying declining economic growth had reduced tax revenue estimates.

In its medium term budget statement, Treasury said efforts to reduce borrowing had been frustrated by consistent downward adjustments to growth forecasts and tax revenue as household consumption and private sector investment fell.

South Africa cut its 2016 GDP growth forecast by almost half on Wednesday and warned that the country risked slipping into a “low growth trap”. The economy is expected to grow by 0.5 percent this year, down from an estimate of 0.9 percent in February, Treasury said in its medium term outlook.

Treasury's growth forecast for 2017 was cut to 1.3 percent from 1.7 percent previously, and its 2018 estimate was trimmed to 2 percent from 2.4 percent.

Lower growth estimates were partly due to weak investor confidence linked to perceptions of elevated political risk.

Pros and cons of cuts

Aggressive cuts to spending might bolster investor and business confidence but would add to the difficulties facing the economy and could result in credit ratings downgrade, higher interest rates and capital outflows, Treasury said.

The government will aim for a “measured” approach to consolidating its budget by avoiding sharp cuts to spending while continuing to prioritise capital investment.

Additional revenue measures and further spending cuts over the medium term should see net national debt stabilise at 47.9 percent of GDP in 2019/20.

Reuters

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