South Africa’s economic rebound expected to reduce budget deficits: Reuters poll By Reuters


© Reuters. FILE PHOTO: Coronavirus disease (COVID-19) outbreak in Soweto

By Vuyani Ndaba JOHANNESBURG (Reuters) – South Africa’s consolidated fiscal deficit is expected to narrow this year due to an economic rebound, although the long-term trend of higher debt remains unchanged due to COVID-19 and spending pre-existing, a Reuters poll forecast on Friday. In a survey conducted this week, 2021 economic growth was expected to rebound to 3.5% after an estimated contraction of 7.4% last year, likely boosting revenue collection and reducing deficits for the next financial year to 9.7% from gross domestic product, at 8.5% in 2022/23 and 7.5% in 2023/24. As in other countries, COVID-19 spending doubled South Africa’s budget last year. The 2020/21 deficit was estimated at 13.95% of GDP in the survey with only about six weeks to go. In October, the consolidated budget of the National Treasury estimated a GDP deficit of 15.7% in the year ending in March, 10.1% for next year and 8.6% and 7.3% for the following years, respectively. Nedbank economists wrote that the 2020/21 budget was expected to be much better than the one presented in the National Treasury’s October medium-term budget statement. “Revenue collection has been better than estimated due to a stronger-than-expected economic rebound, while expenditures will be slightly lower than estimated, resulting in a narrower budget deficit,” wrote Isaac Matshego at Nedbank. . “The budget deficit, however, will be relatively rigid (in the medium term) as it is unlikely that real spending cuts will be achieved during the period.” A similar survey in October suggested that South Africa’s consolidated fiscal deficit would widen more than projected, three months earlier in an emergency COVID-19 budget, as a third-quarter rally would not generate enough tax revenue. Still, economists have noted speculation that the National Treasury could increase taxes more aggressively this year in a number of ways, including a wealth tax or a temporary “solidarity” tax to fund things like the purchase of the vaccine. COVID-19, along with the usual pushes to sin and personal taxes. However, “the treasury recognizes the onerous tax burden perceived by the country, not to mention the heavy hit to the company’s earnings that has continued to affect corporate tax revenues in recent years,” said Jeffrey Schultz of BNP Paribas (OTC: ). Consumer inflation was expected to average 3.9% this year and 4.3% next year, still below the midpoint of the Reserve Bank’s comfort level of 3% to 6%. “As a result, the main tax measures announced will be in the form of the customary increases above the CPI for excise duties and fuel taxes, rather than anything that could damage an already fragile and concentrated tax base,” Schultz added. The government projected that gross national debt would stabilize at 95.3% of GDP by 2025/26, roughly in line with the survey median that it expected to be 92.7% in 2023/24. Growth was expected to be slow to 2.2% next calendar year and 1.7% the following year. Interest rates were expected to remain unchanged at 3.5% this year, but the Reserve Bank was expected to raise them to 4.0% next year and 4.75% in 2023. (Vuyani Ndaba Report and Survey, edited by Larry King)