Finance Minister Tito Mboweni, flanked by deputy minister, Mondli Gungubele, right, and Treasury director-general, Dondo Mogajane, arrives in Parliament for his maiden Budget speech yesterday. Mogajane is holding an aloe that Mboweni said was an iconic plant, ‘resilient, sturdy and drought resistant’, adding that the country must take the bitter with the sweet to return to ‘plum times’. GCIS

JOHANNESBURG – The government borrowing is set to balloon by R96 billion to R335.3bn in the 2019/20 financial year on lower-than-expected revenue collection with National Treasury projecting the net debt to gross domestic product (GDP) ratio to reach 57.3 percent or R4.5 trillion in 2024/25.

Treasury said servicing the debt would increase by R2.1bn in the current year, R4.5bn in 2019/20 and R10.2bn in 2020/21.

It said the government’s borrowing appetite would be funded by both short and long-term measures utilising the domestic market and foreign currency loans. It said it would prioritise expenditure and reduce tax measures to avoid a further drag into debt.

Finance Minister Tito Mboweni said the government had proposed savings from compensation adjustments totalling R50.3bn, while tax measures were expected to raise an additional R15bn in 2019/20 and R10bn in 2020/21.

Mboweni said the government’s determination to regain its fiscal prudence will be at the heart of our economic recovery. 

“We are borrowing about R1.2bn a day, assuming that we don’t borrow money on the weekend. This coming year, interest expenditures will be R209.4bn. This is R1bn per day. The expenditure and tax adjustments are designed to largely counteract the additional allocation for Eskom and the revenue shortfall.”

Treasury’s director-general, Dondo Mogajane, said the government remained committed to managing the budget deficit and containing public debt at sustainable levels.

“Changes to the medium-term expenditure framework result in the main budget deficit widening to 4.7 percent of GDP  in 2019/20 and then narrowing to 4.3 percent of GDP by 2021/22,” he said.

Treasury said it also expected President Cyril Ramaphosa’s undertaking to reconfigure government to provide additional savings.

William Jackson, an economist at Capital Economics, said the wider-than-expected South African fiscal deficit projections in the budget were a result of financial troubles at Eskom and other state-owned companies.

“A closer look at the details of the budget suggests that the fiscal stance will actually be tighter than the headline figures suggest,” Jackson said.

Treasury was adamant that financial support for state-owned enterprises such as SAA, SABC and arms manufacturer Denel would depend on them offloading their non-strategic assets.  Treasury said the above-mentioned entities had already requested fiscal support to continue operating.

"Government has revised the contingency reserve for 2019/20 to respond to possible requests for financial support,” the Treasury said. 

“Any financial support agreed on will be raised from the sale of non-core assets and will be excluded from the expenditure ceiling.”

The government projects its spending to breach the R2 trillion mark in the 2021/22 fiscal year and expects expenditure to grow by an annual average rate of 7.8 percent.

Mboweni said the government had further increased its expenditure ceiling by R16bn over the next three years.

Meanwhile, Moody’s gave a lukewarm reception to the budget. Moody’s lead sovereign analyst for South Africa, Lucie Villa, said the budget highlighted the government’s limited fiscal flexibility amid a challenging economic environment. 

“The budget shows a further erosion in fiscal strength after the October medium-term budget policy statement already pointed to wider deficits for longer,” Villa said.