FINANCE Minister Tito Mboweni noted the harsh reality that nearly half of the government’s consolidated revenue will go towards paying public servants.     GCIS
FINANCE Minister Tito Mboweni noted the harsh reality that nearly half of the government’s consolidated revenue will go towards paying public servants. GCIS

South Africa targets narrowing of budget gap from next year

By Prinesha Naidoo Time of article published Jul 1, 2020

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JOHANNESBURG - South Africa’s Treasury will outline plans in its medium-term budget policy statement in October to free up 250 billion rand ($14.4 billion) to narrow the fiscal gap from next year, the acting head of its budget office said.

The Cabinet agreed to target a primary budget surplus by 2023-24 and actively manage the nation’s finances to ensure government debt stabilizes at 87.5% of gross domestic product in three years. If it fails to do that, debt will exceed 140% of GDP by the end of the decade, the Treasury said last week.

The planned fiscal consolidation would require raising an additional 40 billion rand in tax revenue over the next four years, while cutting spending by 230 billion rand over the next two years. As a start, the Treasury wants to increase tax revenue by 20 billion rand over the first two years and cut expenditure by 90 billion rand next year, Edgar Sishi, acting head of the budget office, said in an investor call organized by FirstRand Group Ltd.’s Rand Merchant Bank, and Deutsche Bank.

The consolidated budget deficit will swell to 15.7% of GDP in the year through March 2021, Finance Minister Tito Mboweni said last week. That’s more than double the 6.8% gap the Treasury forecast in February before the coronavirus struck South Africa and the country implemented a strict lockdown to curb its spread. The largest shortfall on record was 11.6% of GDP in 1914.

The impact of the coronavirus pandemic on South Africa’s economy, the government’s poor track record of sticking to plans to trim the budget deficit and debt, and demands from struggling state-owned companies would make it difficult to stabilize debt by 2023-24, ratings companies Moody’s Investors Service and Fitch Ratings said after last week’s emergency budget.

However, Sishi said the Treasury’s success in redirecting more than 100 billion rand for virus support suggests “it is by no means an impossible task to find 90 billion rand next year off a baseline that will be marginally larger than the one we have this year.” That, coupled with the fact that the government has yet to agree to a new public-sector wage deal to replace the current agreement that expires this year, gives it room to maneuver, he said.

BLOOMBERG 

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