South African Finance Minister Tito Mboweni unveiled his budget for the coming fiscal year, and the outlook for the continent’s most industrialized economy isn’t pretty.
The National Treasury has cut economic growth forecasts, plans to reduce state spending and won’t provide tax relief for citizens as it seeks more funds to prop up debt-laden state-owned companies, including yet another record bailout for power utility Eskom Holdings SOC Ltd., which last week struggled to keep the lights on.
The National Treasury forecast a fiscal gap of 4.5 percent of gross domestic product for the year starting April 1. If realized, it would be the worst since the 6.3 percent reported in fiscal 2010, and bigger than the estimate in a Bloomberg survey.
The Treasury reduced the forecast for expansion in gross domestic product this year to 1.5 percent from 1.7 percent estimated in October, and cut growth predictions for the next two years. The economy that hasn’t expanded by more than 2 percent since 2013.
Forecasts for gross debt as a percentage of GDP are worse than the October estimates for every year through 2027, with the figure expected to stabilize at 60.2 percent in 2023-24 compared with the prior prediction of 59.6 percent for the same year. The slippages come as the Treasury provides a 23 billion-rand ($1.6 billion) lifeline to loss-making power utility Eskom Holdings SOC Ltd. in each of the next three years.
The fastest-growing expenditure item in the budget is debt-servicing costs, with the country spending 182.2 billion rand in fiscal 2019, rising to 247 billion rand by 2022. South Africa is “borrowing about 1.2 billion rand a day, assuming we don’t borrow money on the weekend,” Mboweni said.
Charts showing South Africa’s economic woes are below.