A recent Reuters survey indicates that South Africa’s budget deficit is expected to contract in the coming years, albeit at a pace slower than October estimates, primarily due to weakened mining tax receipts. The survey, conducted among economists last week, reveals a consensus that the consolidated budget deficit for the fiscal year starting in March will reduce to 5.0% of GDP, representing a 0.4 percentage point decrease from previous estimates by the National Treasury.
However, subsequent fiscal years are likely to experience further delays, with deficits anticipated to decrease from the government’s October projections of 4.2% and 3.6% of GDP to 4.6% and 4.2% of GDP for the next two years. The economic landscape was affected by a slump in coal prices and export volumes, contrasting with the windfall in mining taxes and favorable commodity prices witnessed in 2022.
Contrary to treasury estimates of 4.9% of GDP, this year’s deficit is now expected to increase to 5.3% of GDP, as highlighted in the survey. South Africa’s actual gross debt-to-GDP ratio is predicted to reach 76.6% in the upcoming fiscal year, averaging around 78% over the following three fiscal years.
The economic outlook for South Africa projects a modest expansion of 1.1% this year, reflecting a slight downgrade from last month’s prediction. The progressively weaker growth statistics pose challenges for the nation to implement tax hikes.
The survey also suggests a postponement in rate cuts by the South African Reserve Bank, now anticipated in the third quarter of this year rather than the previously predicted cuts between July and September. Despite challenges, some optimism exists for the South African economy, with expectations of slight improvement by the end of 2024, attributed to eased port issues, reduced power shortages, and supportive fiscal policies.