South Africa’s National Treasury will use the medium-term budget policy statement in October to outline how it plans to free up R250 billion to narrow the fiscal gap from next year, according to the acting head of its budget office.
The cabinet has agreed to target a primary budget surplus by 2023-24, and actively managing the nation’s finances to ensure government debt stabilises at 87.5% of GDP in three years. If it fails to do that, debt will exceed 140% of GDP by the end of the decade, Treasury said in a special adjustment budget 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 National Treasury’s budget office, said in an investor call organised by 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.
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, rating companies Moody’s and Fitch said after the 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 manoeuvre, he said.
© 2020 Bloomberg L.P.