By Vuyani Ndaba
JOHANNESBURG (Reuters) – South Africa’s Treasury will trim its budget deficit forecasts for coming years later on Wednesday as bumper commodity prices boost corporate tax receipts, a Reuters poll of economists found.
The deficit will narrow to 5.9% of gross domestic product (GDP) for the year that begins March 1 from this fiscal year’s deficit of 6.6%, according to the poll’s median forecast. The gap is expected to narrow further to 5.25% and 4.6% in the following two years.
The budget statement is due later on Wednesday at 1200 GMT.
In its last review in November, the government expected the budget deficit to shrink to 7.8% of gross domestic product for the year that ends on Feb. 28, to 6.0% next year and 5.3% of GDP in 2023/24.
“We estimate additional commodity-revenue upside of more than 1% of GDP since November’s medium-term budget, bolstering corporate income tax receipts,” said Jeffrey Schultz, senior economist at BNP Paribas.
Economic growth – projected to slow to 1.9% this year according to a separate Reuters poll from around 5% in 2021 – has put government finances under pressure in recent years. Growth is a good indicator of tax revenue performance.[ECILT/ZA]
However, the relaxation of many COVID-19 restrictions around the world saw some supply chain improvement and commodity prices have risen markedly.
Economic growth in South Africa has consistently undershot expectations in Reuters polls for at least the last decade while also underperforming other emerging market economies such as India over the past decade.
Last year’s growth, however, looks set to surprise on the upside for the first time since 2010. Economists warn, though, this could be a one-off given South African economy’s deep structural problems persist even as supply chains are on the mend and life returns to normal following the pandemic era curbs.
Budget deficits around the world widened markedly due to huge spending in the battle against COVID-19 and South Africa Treasury officials scrapped their initial spending plans.
In a 2020/21 supplementary budget, the consolidated deficit assumption was revised from 6.8% of GDP projected in the 2020 Budget to 15.7%. However, thanks to better-than-expected corporate tax receipts, that halved.
“Most importantly, we expect the primary budget to return to balance in the upcoming FY22/23 budget, with a surplus ensuing from FY23/24, a year earlier than the National Treasury originally forecast, and despite embedded expectations around higher social spending,” added Schultz.
He said this should continue to bode well for South African government bonds.
The latest poll also showed the median gross debt-to-GDP ratio much lower than forecast in the October poll. Public debt was expected to reach 74.25% of GDP this year and 76.20% the following year.
(Reporting and polling by Vuyani Ndaba; Editing by Jonathan Cable, Ross Finley and Tomasz Janowski)
