Additional financial support to Eskom and the preliminary indication of tax revenue shortfall relative to the 2019 budget has resulted in a revised funding strategy and an increase in government borrowing requirements for 2019/20. File Photo: IOL
JOHANNESBURG – Data from the National Treasury shows that the budget deficit for the three months of the 2019/20 financial year ballooned to R57.5 billion from a deficit of R27.59bn in the comparative period of the 2018/19 fiscal year.

The shortfall was expected to widen even further, following the government’s additional multibillion-rand handout for the country's embattled power utility, Eskom, announced last week.

The Treasury said in a statement on the JSE Sens that it would increase weekly bond auction levels to try to close the shortfall.

“Additional financial support to Eskom and the preliminary indication of tax revenue shortfall relative to the 2019 budget has resulted in a revised funding strategy and an increase in government borrowing requirements for 2019/20,” the Treasury said.

The nation’s purse keeper added that the fixed-rate bond auction amount would increase by R1.2bn to R4.5bn, while the inflation-linked bond auction amount would rise by R280 million to R1bn.

Investec economist Kamilla Kaplan said that the combination of revenue shortfalls and further financial support to state-owned enterprises, especially the troubled power utility, would impact negatively on the country's fiscal metrics.

“Specifically, the 2019/20 consolidated government budget deficit is widely expected to exceed 6percent of gross domestic product (GDP), versus the 4.5 percent deficit that was forecast by the National Treasury in the 2019 Budget, and debt levels are seen to tip 60 percent of GDP (versus 56.1 percent that the National Treasury had forecast),” Kaplan said.

“As such, South Africa remains vulnerable to a sovereign credit rating downgrade by Moody’s to non-investment grade.

"South Africa’s rating with S&P and Fitch is already at non-investment grade since 2017,” Kaplan reminded.

Fitch Ratings in a statement last week said that the R59bn bailout for Eskom in the next two years would see the government's debt worsen.

Dawie Roodt, chief economist at the Efficient Group, said that the country’s growing fiscal deficit was something that all the ratings agencies were looking at closely.

“The 5½ percent to 6 percent deficit we are looking at in South Africa is a serious problem,” Roodt added.

South Africa’s economy, which slumped 3.2 percent in the first quarter and registered an official unemployment rate in the second quarter of 29 percent, received a temporary reprieve in the form of positive trade data.

The SA Revenue Service on Tuesday said that the country’s trade surplus had increased to R4.42bn in June from a R1.7bn surplus recorded in the previous month.

The trading surplus was due to exports of R108.17bn in the month versus imports of R103.75bn.

However, on a year-on-year basis, the R4.42bn trade surplus for June was a deterioration from the R12.19bn surplus registered in June last year.

FXTM research analyst Lukman Otunuga said that the second consecutive trade figure suggested that there was demand for South African exports.

“However, both exports and imports have declined in June with the 5.8 percent drop in imports caused by weak domestic growth.

"With exports dropping by 3.2 percent month-over-month amid slowing global growth, this is negative for South Africa, especially when factoring in how exports account for approximately 30 percent of the country's GDP,” Otunuga pointed out.

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