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South Africa’s budget was released on Wednesday

Public deficit will widen and debt won’t stabilize:

  • The consolidated budget balance released at -6.3% of GDP for 2019/20 given a revenue shortfall of Rand 21 billion.
    For 2020/21, revenue is projected to be R1.58 trillion, or 29.2% of GDP.
    Expenditure is projected at R1.95 trillion, or 36% of GDP.
  • This means a consolidated budget deficit of R370.5 billion, or 6.8 %  of GDP in 2020/21 (compared to 6.5% in the MTBPS), 6.2% in 2021/22 (same as MTBPS), and then finally 5.7% in 2022/23 (5.9% in the MTBPS).
  • Gross national debt is projected to be R3.56 trillion, or 65.6% of GDP by the end of 2020/21 and above 70% in 2022/23.
    These projections are worse than consensus estimates for the two first years (6.2% in 2019/20, 6.4% in 2020/21) and better after 6.4% in 2021/22 and 5.9% in 2022/23.

These estimations are based on the following assumptions:

  • Real GDP growth projected at 0.9% in 2020, 1.3% in 2021 and 1.6% in 2022 (Amundi: resp 0.2, 0.8 and 1%)
  • Inflation: 4.5% in 2020/21 FY and 4.8% in 2021/22 FY and 2022/23 (Amundi: Y2020:4.4% and 2021:4.7%)

All efforts are focused on the expenditure side.

  • The Treasury mentioned that “to support growth, we propose no major tax increases” ie no increases in VAT or personal income tax rates.
  • The Government also announces “a net downward adjustment to main budget non-interest expenditure of R156.1 billions over the next three years relative to the 2019 Budget projections.”
    The total reduction is mainly the result of lowering programme baselines by R261 billions of which R160 billions cut to the wage bill but partially offset by additions and reallocations of R111 billion. Of this, more than half, or R60 billion, is for Eskom and South African Airways.”

The intentions are there but risks also

  • The Government is trying to gain credibility
  • Will it succeed, that is the question?

It is not sure that investors or rating agencies such as Moody’s that is supposed to release its sovereign outlook end of March will be convinced. The projections are based on a strong assumption of a massive cut of wage bill that will be very unpopular and difficult to implement. Some Unions already threaten to protest.

HERVE Karine , Emerging Markets Senior Economist
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South Africa’s budget was released on Wednesday
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