Tito Mboweni

CAPE TOWN – South Africa’s budget deficit will rise to a nearly two-decade high and its gross debt is set to soar as a weak economy leads to revenue shortfalls and bailouts for state-owned companies strain public finances, the Treasury said on Wednesday.

It also slashed the economic growth forecast for this year
to 0.5% from 1.5%. “This is a serious position to be in,” Finance Minister Tito
Mboweni told lawmakers, adding that “difficult decisions” must be made to help
stabilise debt, including cuts to spending and a public wage bill that has
soared by 66% in the last decade.

In a medium-term budget policy statement, the Treasury said
the budget deficit was likely to reach 5.9% of gross domestic product this
fiscal year, which runs from April 2019 to March 2020, far above a previous
estimate of 4.5%.

The projected deficit would be the highest since 2009/10. It
is then seen widening further, to 6.5% in 2020/21, the highest since the
Treasury started presenting the consolidated fiscal framework in 2002/03.

Gross government debt was projected to rise from an
estimated 60.8% of GDP in the current fiscal year to 71.3% in 2022/23, the
Treasury said. South Africa is struggling to gain economic growth momentum,
with the growth outlook clouded by a lack of significant progress on
long-promised reforms.

The rand weakened more than 1% against the dollar after the
budget numbers were published. Government bond yields rose.

“The consequence of not acting now would be gravely negative
for South Africa,” Mboweni said told parliament.

“Over time, the country would likely face mounting debt
service costs and higher interest rates and may enter a debt trap.”

The finance minister said new cash flow support for state
power utility Eskom, whose struggle to supply electricity is a major drag on
economic growth, would no longer be in the form of equity but loans.

The government has pledged to give Eskom more than 100 billion rand ($6.75 billion) over the next two fiscal years, with additional aid spread over the next decade. –Reuters

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