MTBPS: SA may need help from IMF if state debt reaches danger levels

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Finance Minister Malusi Gigaba.
Finance Minister Malusi Gigaba.

Government debt could increase by more than 50%, or by R1.2 trillion, to danger levels over the four fiscal years ending March 2021 – and if this comes to bear it could ultimately lead the country to seek international help from organisations like the International Monetary Fund (IMF).

Finance Minister Malusi Gigaba today presented his first Medium Term Budgetary Policy Statement (MTBPS) to parliament. He was appointed as finance minister on March 31 after President Jacob Zuma reshuffled his Cabinet and fired Pravin Gordhan.

The MTBPS is a key fiscal statement and provides fiscal forecasts over a three-year time frame including estimated economic growth, tax revenue, expenditure, the budget deficit and the level of government debt.

Gigaba’s MTBPS warned that gross national debt is projected to continue rising, reaching over 60% of GDP by March 2021 from over 50% earlier this year.

Debt of 60% of GDP is seen as a red light level for government finances while debt of 65% to 70% of GDP could see the government forced to seek international help from organisations like the IMF.

“Gross loan debt is expected to increase from R2.5 trillion or 54.2% of GDP in 2017/18 to R3.4 trillion or 59.7% of GDP in 2020/21. Absent higher economic growth or additional steps to narrow the budget deficit, the debt-to-GDP ratio is unlikely to stabilise over the medium term.”

“In this context, government faces difficult choices,” the National Treasury said.

“South Africa’s stated policy aspirations and its social needs far exceed available public resources. Moreover, there is little space for tax increases in the current environment,” the National Treasury added.

In another shock for investors, National Treasury said that the recapitalisation of SAA and the South African Post Office put the government’s expenditure ceiling at risk of a R3.9 billion breach.

“Government is considering the disposal of assets to offset these appropriations during the current year,” the National Treasury said.

Treasury has cut its forecast for local economic growth.

For this year the government is forecasting the economy to grow by 0.7% from its forecast of 1.3% made at the February Budget Speech.

A growth rate of 0.7% for 2017 means South Africa has the slowest rate of growth – along with Brazil – among all major developed and developing economies worldwide.

The world economy is expected to grow by 3.6% this year and on average the developing world is forecast to expand by 4.6% in 2017.

For 2018, the National Treasury is forecasting growth to be 1.1% followed by growth of 1.5% in 2019 and 1.9% in 2020.

This compares with local population growth of about 1.6%.

As a result, the National Treasury said that its macroeconomic projections implied that per capita income, which indicates the average wealth per citizen, would stagnate for years to come.

“Unless decisive action is taken to chart a new course, the country could remain caught in a cycle of weak growth, mounting government debt, shrinking budgets and rising unemployment,” the National Treasury said.

Debt service costs are forecast to be the fastest rising item in the government budget, increasing on average by 11% from the 2018 fiscal year through to the 2021 fiscal year. This increase compares with average increase in government expenditure of 7.3% over the same time period.

Turning to inequality, the MTBPS document said that the share of total income going to the top 10% of local income earners is between 60% and 65%.

“Wealth inequality is even more pronounced,” the document said.

Gigaba said that local wealth remained highly concentrated with 95% of local wealth in the hands of 10% of the population.


Justin Brown
Business editor
City Press
p:0117139001
w:www.citypress.co.za  e: justin.brown@citypress.co.za
      
 
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Finance Minister Malusi Gigaba's full speech

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