SA growth forecast for 2020 slashed to 0.9% from 1.7% a year ago
JOHANNESBURG – Finance Minister Tito Mboweni on Wednesday slashed South Africa's growth forecast for 2020 to a mere 0.9 percent from 1.7 percent a year ago as the country's Budget deficit accelerated to its biggest level in nearly 30 years.
Mboweni said the deficit, which was projected to widen to 6.8 percent in the fiscal year to February 2021, rising debt-servicing costs and unstable energy supply weighed heavily on the country's growth prospects.
Mboweni said the economic growth outlook had weakened since October, following lower-than-expected growth in the second half of the year, partly due to electricity supply shortages.
He said the barriers to economic growth were complex and required structural reforms, adding that the economy should get a jump start over the next 18 months, but persistent electricity problems would stifle growth.
“Against this backdrop, we forecast that the South African economy will grow by 0.9 percent and inflation will average 4.5 percent in 2020,” Mboweni said. “Over the next three years, we expect growth to average just more than 1 percent. Therefore, a stable supply of electricity will be our No 1 task.”
The economy contracted by 0.6 percent in the third quarter as household consumption declined to 1.1 percent in the first nine months of 2019 from 2.1 percent a year earlier.
The global economy was expected to recover moderately to 3.3 percent from its recent slowdown, supported by low interest rates and reduced trade tensions between the US and China.
The National Treasury said the government planned to sell rand-denominated Islamic notes, increase domestic-debt issuance and speed up its bond-switch programme to meet a wall of redemptions and plug the widening Budget deficit over the next three years.
It said the government's borrowing requirement increased to R407.3bn in the current fiscal year from an estimate of R335.3bn in the previous Budget.
Mboweni said real gross domestic product (GDP) for 2019 was now expected to grow only 0.3 percent in the current fiscal year from 1.5 percent forecast in the previous Budget.
He said the government spending for the 2021/22 financial year would for the first time cross the R2 trillion mark as total consolidated government spending is expected to grow at an average annual growth rate of 5.1 percent due to mounting debt-service costs.
Mboweni said revenue was projected to be R1.58trln or 29.2 percent of GDP, while expenditure was projected at R1.95trln.
He said this meant a consolidated budget deficit of R370.5bn, or 6.8 percent of GDP in 2020/21.
Mboweni said gross national debt was now projected to be R3.56trln, or 65.6 percent of GDP by the end of 2020/21, while debt-service costs now absorb 15 cents of every rand the government collects.
He said the government had reduced the main Budget expenditure baseline by R156.1bn over the next three years in comparison with 2019 Budget projections, as a step towards fiscal sustainability.
“The total reduction is mainly the result of lowering programme baselines and the wage bill by R261bn,” Mboweni said.
“These are partially offset by additions and reallocations of R111bn. Of this, more than half, or R60bn, is for Eskom and SAA.”
Earlier, Mboweni said austerity would be the last resort for the government to consider.