CAPE TOWN, February 20 – South Africa’s budget deficit is expected to widen to 4.5 percent of gross domestic product in the 2019/20 fiscal year from 4.2 percent in 2018/19, as economic growth remains subdued and tax revenue weak, the National Treasury said on Wednesday.
The budget forecasts have deteriorated from last October, when the National Treasury forecast deficits of four percent and 4.2 percent for 2018/19 and 2019/20 respectively.
The shortfall is still expected to stabilise at four percent of GDP by 2021/22.
In his budget speech to Parliament, Finance Minister Tito Mboweni said revenue in the upcoming 2019/20 financial year would amount to R1.58 trillion, against spending of R1.83 trillion.
“That means we will spend R243 billion more than we earn. Put another way, we are borrowing about R1.2 billion a day, assuming that we don’t borrow money on the weekend,” he said.
The Treasury said the economy’s performance continued to weigh heavily on tax revenues.
It noted that while the medium term budget policy statement presented last October had projected a 2018/19 revenue shortfall of R27.4 billion, this was now expected to come in at R42.8 billion.
“Economic weakness has fed through to lower personal income tax and corporate income tax receipts. Administrative weaknesses in collection were a contributing factor.”
It proposed a series of tax and expenditure measures aimed at narrowing the deficit and stabilising the debt-to-GDP ratio.
Over the medium term, additions to spending amounting to R75.3 billion, consisting mainly of transfers to support the reconfiguration of power utility Eskom, would be partially offset by proposed savings from compensation adjustments totaling R50.3 billion.
Tax measures would raise an additional R15 billion in 2019/20 and R10 billion in 2020/21.
The Treasury said total public spending over the three-year medium term expenditure framework (MTEF) was expected to be R5.9 trillion, the bulk of which would go to learning and culture, social development, health and community development.
It increased the expenditure ceiling by R16 billion over the next three years, mainly due to provisional allocations for reconfiguring Eskom amounting to R69 billion.
The Treasury said compensation of public employees remained the largest category of spending, accounting for an average of 34.4 percent of consolidated expenditure over the MTEF period, but said it would implement measures to realise a R27 billion reduction in compensation.
The government’s gross borrowing requirement, consisting of the difference between revenue and expenditure, was expected to total R239.5 billion for 2018/19, rising to R335.3 billion in 2019/20.
But the Treasury said the government continued to manage its debt and financing needs in a sustainable and responsible manner, with the gross borrowing requirement projected to decline from 6.2 percent of GDP in 2019/20 to 5.3 per cent in 2021/22.
It noted ratings agencies’ concerns about South Africa’s tepid growth, rising debt burden and contingent liabilities, reflected in sub-investment grade ratings from Fitch and S&P Global.
Further downgrades would have negative consequences for the economy and public finances, it warned.
“Government remains focused on restoring investor confidence by narrowing the budget deficit, stabilising debt, enacting structural reforms to boost growth, and improving the financial position of state-owned companies,” it vowed.
In his budget speech to Parliament, Mboweni said South Africa’s determination to regain its fiscal prudence would form the basis of its economic recovery.
“We will be on our way back to the plum years,” he said.