If growth contracts further in the quarter to December, South Africa’s economy could enter into a technical recession due to two consecutive quarters of negative growth. Photo: Reuters
If growth contracts further in the quarter to December, South Africa’s economy could enter into a technical recession due to two consecutive quarters of negative growth. Photo: Reuters

More fiscal measures are needed to reduce deficit, warns PwC

By Siphelele Dludla Time of article published Feb 12, 2020

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JOHANNESBURG – PricewaterhouseCoopers (PwC) has warned South African economic growth could weaken even further if more fiscal measures are not implemented to reduce the deficit as the revenue shortfall widens.

PwC chief economist Lullu Krugel said on Tuesday that the National Treasury’s growth forecasts could be revised slightly lower compared to the numbers in the 2019 Medium-Term Budget Policy Statement (MTBPS).

Krugel said PwC had forecast that the gross domestic product (GDP) would now grow by 0.4 percent in 2019, down from 0.5 percent forecast in October. She said the economy would slow down to 1 percent in 2020, down from 1.2 percent previously forecast.

“We are expecting the GDP to be slightly lower than what Treasury had forecast in the mid-term budget. Certainly load-shedding is one of the contributors to that,” Krugel said.

Statistics South Africa will release GDP figures for the fourth quarter 2019 early in March.

Real GDP decreased by 0.6 percent in the third quarter of 2019.

If growth contracts further in the quarter to December, South Africa’s economy could enter into a technical recession due to two consecutive quarters of negative growth. The economy had contracted sharply by 3.2 percent in the first quarter last year – the largest decrease since the first quarter of 2009 – as a result of Eskom’s load-shedding. Kyle Mandy, the head of tax policy, at PwC said making a measurable impact on the fiscal balance in 2020/2021 would require action from the government on the revenue side.

The MTBPS estimates for 2019/20 tax revenues were revised downwards by R52.5 billion to R1369.7bn.

The mid-term budget forecast a fiscal deficit equal to 5.9 percent of GDP in 2019/2020, due to an increase in expenditure and slower growth in revenue collection, up from 4.5 percent forecast in February.

Mandy said the 2019/2020 budget deficit could be expected to come in at 6.3 percent of GDP based on tax collections to date, weaker economic growth assumptions, and assuming no significant change in expenditure.

If this comes to pass, this would be the largest shortfall since 1992.

“Our biggest wish would be for the Minister of Finance to announce the economic reform plan has been adopted by the government and that implementation will be fast-tracked,” Mandy said. “There might be aspects that are brought into the Budget, but I think there are still elements which require much more concentration and discussion.”

Mandy said the government could have saved around R46bn if the Minister of Finance had been able to address the large public sector wage bill by implementing a wage freeze during the year.

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