By Vuyani Ndaba
JOHANNESBURG (Reuters) – Mining tax receipts will keep topping up South Africa’s public purse, but crimped growth from erratic power generation and financial support to struggling state-owned enterprises will mean more wide budget deficits to come, a Reuters poll found.
The consolidated budget deficit is likely to narrow to 4.5% of gross domestic product for the fiscal year beginning in March and to 4.4% of GDP the following year before dropping to 3.9% in fiscal 2025/26, according to the median readings in a poll of 15 economists in the past week.
For the financial year ending this month the Reuters poll estimated the budget deficit at 4.8% of GDP compared with the National Treasury estimate of 4.9% in its October review.
That government review also assumed a quicker fall to 4.1% of GDP in the coming 2023/24 year.
“Although we expect revenue growth to remain relatively buoyant, the budget deficit will narrow slower than the medium term budget policy statement projections,” said Nedbank economist Isaac Matshego.
Tax buoyancy – a relationship between tax revenue collection and economic growth – has been a concern in the past, but thanks to bumper commodity prices South Africa’s budget should narrow in the coming three years.
Still, Matshego expects expenditure to rise at a faster rate than the National Treasury’s previous forecasts due to a higher-than-budgeted wage bill, transfers to state-owned enterprises and disaster relief funds.
South Africa’s economy has been under severe pressure and is expected to grow just 1.0% this year and 1.5% in 2024, according to the poll. Reserve Bank Governor Lesetja Kganyago surprised markets last month when he predicted just 0.3% growth this year.
“We see downside risks to the National Treasury’s GDP assumptions and deficit consolidation for FY23/24 and beyond. A sticky inflation outlook should help mitigate a moderation in nominal revenues for now,” said Jeffrey Schultz, economist at BNP Paribas.
Inflation, recorded at 6.9% last month, is following a global trend and slowing in response to aggressive monetary policy tightening. It was expected to average 5.6% this year and 4.7% in 2024.
High hopes that the government will next week lay out plans to take on a majority of the debt owed by beleaguered utility Eskom have lifted the company’s bonds recently, providing some relief to investors facing a long and uncertain wait.
“Eskom will likely ‘steal the show’ in Budget 2023. We expect a relatively well-received, piecemeal approach to the Treasury taking on 200 billion rand of Eskom debt, spread over the next two fiscal years,” said Schultz.
South Africa has been struggling for years to overhaul its state-owned power company which is plagued by corruption and mismanagement and reeling under a 400 billion rand ($22 billion) debt pile.
A narrow majority of economists, nine of 17, expected South Africa’s Reserve Bank to repeat last month’s hike and take its main lending rate up by 25 basis points in March, putting it at 7.50%. The other eight predicted no change.
(Other stories from the Reuters global economic poll)
($1 = 18.2326 rand)
(Reporting and polling by Vuyabi Ndaba; Editing by Jonathan Cable and Hugh Lawson)
