Minister Gigaba delivering his Midterm Budget Speech
DURBAN - After the Medium Term Budget Policy Speech by the Minister of Finance Malusi Gigaba, the fiscal position of South Africa is a "dire picture".

According to Tumisho Grater, an economic strategist for Novare, the weakness in revenue collection an dthe further downward revisions to the economic growth projections have significantly eroded the fiscal position of government.


The forecasted economic growth projection has been revised from 1,3% to 0,7%. This is in line with the projections from the International Monetary Fund and the World Bank. The weaker outlook is reflective of the continued decline of indicators as the consumer and business confidence remains fragile. This has led to slow investment. 

Due to the lower growth forecast, further pressure will be put on revenue collection. South Africa's credit ratings have been affected by a lack of political stability. 

The Finance Minister said that growth is expected to get better in the forthcoming years, assuming that there is improved economic growth and increased trade. The National Treasury sees the country benefitting from the improved global growth outlook. 

Fiscal outlook:

Revenue collection has been an important element in sustaining fiscal consolidation effort, however revenue collection is under threat. The time period of revenue buoyancy, the extension of revenue linked to economic growth, has come to an end. According to the National Treasury, they have projected a revenue shortage of R50,8 billion in 2017/2018. This is a direct reflection of economic growth slowing and could indicate a turning point in the relationship between tax collection and economic growth. 

In 2016 the tax buoyancy dropped to 1,01 in spite of changes to tax policy that were intended to raise R18 billion in extra revenue. In 2017 although there was tax policy measures to created to add R28 billion to the revenue, a buoyancy of 1,02 is estimated. 

Revenue shortfall ripple effect:

Due to the revenue shortages, the consolidated budget shortfall for 2017/2018 is expected to be 4,3% of the Gross Domestic Product (GDP). This is higher than what was estimated in the 2017 budget. The projections are as such that the shortfall is likely to stay at this elevated level in the medium term. The gross national debt is expected to continue to grow over 60% of the GDP by 2022 based on that estimate. 

Debt services are another area of concern. They are the fastest growing expenditure sector, which will weigh on social and economic funding or projects.

Between a rock and a hard place:

To compensate for the revenue shortages and to cut down on borrowing, the money that was set aside for future shortfalls will be trimmed down to R16 billion in the next three years. This would leave government with little movement in the instance that risks to to the expenditure ceiling should arise. Therefore one can understand that there is a high chance that some programmes will need to be axed or their funding decreased. Funds will need to go into the growth enhancing programmes. 

Credit ratings are less likely to see this budget in a positive light.