South Africa’s budget deficit is expected to widen to 4,3% of GDP in the next financial year due to tax revenue shortfalls, weak growth and measures to shore up struggling state-owned enterprises.
The National Treasury said in its medium-term budget policy statement on Wednesday.
The government’s target for the consolidated budget deficit was 3,1% of GDP for 2017/18. But tax revenue collection is likely to be R50,8 billion lower than expected in the current financial year, in what National Treasury termed the “largest under-collection since the 2009 recession”.
It noted that the budget was further constrained by additional appropriations of R13,7 billion to forestall calls against government guaranteed debt by the creditors of loss-making South African Airways and the South African Post Office.
This sum would be partially offset by dipping into the government’s contingency reserve, as well as projected underspending. National Treasury warned that government’s options in terms of reversing deficit growth were limited.
It said in the context of falling per capita income, it could be counter-productive to raise taxes or cut spending. “Following several years of expenditure restraint, further budget cuts will involve hard choices and difficult compromises.”
Minister of Finance Malusi Gigaba delivered the mid-term budget policy in Parliament on Wednesday.
Research analyst at FXMT Lukman Otunuga commented shortly after the budget speech that the rand was vulnerable to steep losses against the dollar after the Minister’s first medium-term budget illustrated a depressing outlook for the South African economy.
“His opening lines after some prose alluded to the fact that the news was not good, and it wasn’t. Economic growth was revised downwards from 1,3% to 0,7%, while the consolidated budget deficit was projected to widen to 4,3% in 2017-2018 against the 3,1% 2017 target set in February,” says Otunuga.
He says soft economic growth in 2017 is predicted to drag gross tax revenues lower, with revenues already falling by R50,8 billion in 2017/2018.
Otunuga says the GDP per capita has declined for two consecutive years, and unemployment is at its highest level since September 2003 at 27,7%, which is going to weigh heavily on the rand.
“There is likely to be an increasing focus on economic data from South Africa following today’s ‘brutally honest; medium-term budget, with any further signs of weakness exposing the rand to downside risks,” says Otunuga.
Meanwhile, the CEO of Soul Traveller, a division of the Thebe Tourism Group, Penny Ndlela, says South Africans can now expect to tighten their belts.
“Last year, tourism, including domestic tourism, contributed 9,3% to the overall GDP. However, we can now expect household spending to continue being tight, which will have an impact on domestic spending, especially travel and tourism, which be a luxury in tougher economic times,” says Ndlela.
She says it is expected that domestic tourism could experience a blow and it threatens to have a knock-on effect in the sector in general, which could slow down the growth and contribution to the country’s GDP, as well as threaten jobs across the sector.
Additional source: African News Agency
Source: Budget deficit expected to reach 4,3% in 2017/18 by Destiny Man Reporter | Destiny Man (http://www.destinyman.com/2017/10/25/south-african-budget-deficit-expected-reach-4-3-percent-201718/)