South African Finance Minister Gigaba’s first Medium-Term Budget Policy Statement missed the mark completely, raising the deficit and debt targets substantially without a plan to bring them back over the medium-term expenditure framework.
The deficit for the current year was raised to 4.3% of GDP, up from the deficit target of 3.1% announced in the February Budget Speech. This was on the back of a ZAR51 billion projected revenue shortfall for this year, but a huge miss in terms of market expectations. Substantial further shortfalls in terms of tax receipts over the next two years have led to the deficit staying at 3.9% of GDP for the next few years.
This is significant as no attempt whatsoever was made to continue with the policy of fiscal consolidation. There was also no attempt made at further expenditure cutbacks, further plans for extra tax revenue, or measures to boost economic growth. In addition, SAA recapitalisation is not yet (Telkom shares might be utilised) happening in a deficit neutral manner and despite SOE’s highlighted as a risk, no further improvement in governance or management was announced.
This also meant that the debt-to-GDP ratio target was lifted substantially – from around 50% to above 60%. Again, there was no plan to curb this growth.
Scraping the bottom of the barrel for some positives: the GDP growth forecast for this year and next seem slightly conservative, and the Minister said we cannot approve nuclear power, yet. However, the lack of plans for fiscal consolidation and reigning in the debt ratio means that South Africa’s local currency credit ratings will likely be cut to junk status within weeks. Multiple downgrades within the next six to 12 months are very likely.