The 2019 Medium-Term Budget Policy Statement (MTBPS) was recently delivered by Finance Minister Tito Mboweni and recognises that South Africa’s economic growth has been slowing alongside productivity and competitiveness.
South Africa’s debt-to-GDP ratio is among the highest of its peer countries, with only Argentina, Croatia, Ukraine and Zambia worse off. It is projected that the deficit will widen significantly in the short-term, largely because of the poor financial position of state-owned enterprises such as Eskom.
The debt-to-GDP outlook has been revised to 80.9% of GDP in 2027/28 in the circumstances in which government is required to provide financial support for Eskom. Gross tax revenue is projected to fall short of 2019 Budget estimates by R52.5bn in 2019/20 and R84bn in 2020/21.
The following items have been identified as critical to stabilising the debt-to-GDP ratio, but no concrete solutions were offered:
- A reduction in the public sector wage bill which accounts for 46% of tax revenue in 2019/20, primarily because of above inflation increases in remuneration over the last 10 years.
- Significant tax increases over the recent past have left a moderate scope to increase tax revenues. However, given the size of the deficit, additional tax measures are under consideration.
- The disposal of non-core assets and options for private sector participation are under consideration.
The government has identified short-term growth reforms, which do not require significant resources, but which do promise significant growth, these include:
- Supporting tourism by reducing the cost of traveling to South Africa, and cutting red tape for small businesses in the tourism sector.
- Diversifying power generation by granting licences for small-scale power generation projects approved by the Minister of Energy.
- Expanding telecommunications services by allowing for the rapid expansion of fibre infrastructure.
- Lowering the cost of doing business by automating various registration and filing processes.
To strengthen capacity and improve revenue collection an additional R1 billion is budgeted for SARS over 2019/20 to 2022/23.
Subsequent to the 2019 MTBPS, Moody’s revised their sovereign credit rating outlook from stable to negative, citing the main reason behind the revision as the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures.