Budget is overly rosy – Fitch Ratings

Ratings agency Fitch Ratings says Budget 2024 is optimistic, while government’s latest fiscal projections indicated budget deficits for the next two years that will be smaller than forecast.

Prof Bonke Dumisa, an independent economic analyst, said National Treasury is usually pragmatic in its national budget figures, but 2024 is tricky because of the elections.

“What Fitch is saying is that even our usually very trustworthy National Treasury may have been compromised in its national budget figures to avoid it being labelled ‘an austerity budget’ or a ‘conservative cost reduction budget’ by its opponents,” he said.

Fitch pointed out that assumptions around revenue growth appear optimistic and state-owned enterprises are likely to need additional support not factored into the budget’s debt forecasts.

“Consequently, our fiscal projections remain more conservative than government’s, even considering transfers from an account held with the South African Reserve Bank (Sarb).”

The budget projects the consolidated deficit to reach 4.9% of GDP in the fiscal year ending March 2024, 4.5% in the 2024 financial year and 3.7% in 2025 compared to the mid-term budget policy statement of 4.9% for the financial year ending in March, 4.6% for 2024 and 4.2% for 2025.

Consequently, Fitch pointed out, the authorities now expect gross debt/GDP to increase to 75.3% in the 2025 financial year, which is lower than the previous forecast of 77.7%.

Fitch believed the revised projections for the deficit for the 2024 and 2025 financial years are optimistic. Fitch also did not see dipping into forex and gold reserves as a good idea.

“Although gross debt will be lower than it would have been... the move does not address underlying issues driving debt.”