SA’s budget deficit to widen
SOUTH Africa’s consolidated budget deficit is expected to widen markedly this year, a Reuters poll found, with its National Treasury struggling to squeeze it back to levels it anticipated before the coronavirus pandemic disrupted economic activity.
The poll, taken over the past week, showed a median of 21 economists expect the government budget deficit for this year to widen to a record 14 percent of gross domestic product, from an official estimate of 6,3 percent of GDP in the last financial year.
Finance Minister Tito Mboweni is due to deliver an emergency budget today in response to the Covid- 19 crisis.
“The focus in this budget will be partly on the magnitude of the deficits and, in turn, funding requirement, and perhaps even more importantly whether government can credibly project debt stabilisation in the medium-term,” said Standard Bank’s Elna Moolman.
Forecasts in the poll for the budget deficit over the next two years show a median of just over 10,1 percent of GDP next year and 9,5 percent the following year.
South Africa’s last budget announcement, made in February before the novel coronavirus outbreak took hold, had assumed the deficit would widen slightly to 6,2 percent of GDP, before narrowing to 5,7 percent of GDP.
February’s budget estimates by the government were based on economic growth forecasts of 0,9 percent for the 2020/ 21 year, then 1,3 percent and 1,6 percent for the next two years.
The latest Reuters poll estimated the economy would shrink 6,5 percent this calendar year.
Next year it is forecast to grow 2,9 percent and then 1,5 percent in calendar year 2022.
Answers to an additional poll question that asked what were the three most probable options the government would use to raise additional revenue included an International Monetary Fund ( IMF) loan and scaling up local weekly Treasury auctions.
JP Morgan analysts wrote the official sector would meet most of the increase in this year’s funding needs, with likely around 2 percent of GDP funding from multilateral lenders (the IMF, World Bank, New Development Bank), 2 percent from the South African Reserve Bank in the form of bond purchases, and a further 2,5 percent of GDP from either open market operations or a Covid- 19 bond.
In the case of the IMF it would take the form of its Rapid Finance Instrument (RFI) — a loan with fewer conditions than fully fledged programme.
Two months ago South Africa said it could qualify for as much as $ 4,2 billion at 1 percent.
Since then, RFI limits to lending amounts have been bumped up in response to the Covid- 19 emergency.
The New Development Bank, established by the BRICS group of emerging nations, has approved a US$1 billion Covid19 emergency loan to South Africa, the National Treasury said on Saturday. - Moneyweb