South Africa treasury targets narrowing of budget gap from next year

Treasury will outline plans in its medium-term budget policy statement in October to free up R250 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 stabilises 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 R40 billion in tax revenue over the next four years, while cutting spending by R230 billion over the next two years. As a start, the Treasury wants to increase tax revenue by R20 billion over the first two years and cut expenditure by R90 billion next year, Edgar Sishi, acting head of the budget office, said in an investor call organized by FirstRand Group'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 stabilise 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 R100 billion for virus support suggests “it is by no means an impossible task to find R90 billion 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.

This article originally appeared on Fin24

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