Weekend Argus (Saturday Edition)
Testing time for Gordhan
Minister set to target a budget deficit of 3.4% of GDP
SOUTH AFRICA’S lumbering economic growth is expected to be Finance Minister Pravin Gordhan’s main Achilles’ heel when he presents his budget on Wednesday ahead of a crucial debt ratings review this year, a Reuters poll found yesterday.
A poll of 15 economists taken this week suggests Gordhan is expected to target a budget deficit of 3.4 percent of gross domestic product for the year ending March 2017 in his budget.
Though the gap is slightly narrower than the deficit of 3.5 percent of GDP suggested by the previous poll in February, it is still much wider than the Treasury’s 3.2 percent of GDP projected for the period in the budget earlier this year.
The Treasury is expected to reach a deficit of 3 percent of GDP in the 2017/18 fiscal year and narrow to 2.7 percent in the following year.
“Low economic growth could hamper tax growth and weaken the budget deficit,” Emile du Plessis of Finometrica said.
A Reuters poll last week suggested growth is expected to remain weak this year, at 0.3 percent. The Reserve Bank has it at 0.4 percent and the Treasury is expected to cut it from 0.9 percent projected in February.
“That increases the risk of the fiscal deficit straying from an internationally acceptable level, wider than a deficit of 3 percent of GDP,” Colen Gar- row of Meganomics said.
The budget comes ahead of crucial debt rating reviews later this year and amid a probe of Gordhan, who is facing charges of fraud when he ran the tax agency, accusations the minister has said are politically motivated.
A Reuters poll in August showed the country’s credit rating is set to be cut to junk status by at least Standard & Poor’s out of the three major agencies, with the probe on Gordhan seen to be fuelling speculation.
Economists highlighted the higher debt servicing costs for South African credit in an event of a downgrade.
Finometrica’s Du Plessis said what is also important is the ability and dedication of government departments to be frugal with their budgets and to channel expenditure to productive sectors. – Reuters