Budget 2021: Budget deficit revised down to 14% of GDP

South Africa’s consolidated budget deficit for the 2020 financial year has been revised down to 14% of GDP, Finance Minister Tito Mboweni revealed in tabling the country’s 2021 Budget in Cape Town on Wednesday.

It comes as somewhat of a surprise after he forecast the budget deficit would hit a record 15.7% of GDP during his emergency budget announcement in June last year.

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During his 2020 Medium-Term Budget Policy Statement (MTBPS) speech in October, Mboweni maintained the budget deficit forecast at 15.7%.

The 1.7 percentage point downward revision in the 2020 budget deficit will come as welcome news to economists and organised business, following concerns that the budget deficit would widen further in the wake of Covid-19 second wave restrictions to the economy over the recent December-January holiday period.

Despite the budget deficit now pegged at 14% of GDP for 2020, it still comes in at a record high on the back of the Covid-19 economic fallout that rocked the South African and world economy last year.

During his main 2020 budget speech last February, Mboweni forecast the budget deficit would increase to 6.8% of GDP in the 2020 financial year. South Africa’s budget deficit ‘outcome’ for the 2019 year came in at 6.4%.

“Government’s fiscal strategy puts South Africa on course to achieve a sufficiently large primary surplus to stabilise debt. The consolidated budget deficit is projected at 14% of GDP in 2020/21, narrowing to 6.3% of GDP by 2023/24,” Dondo Mogajane, director-general of the National Treasury notes in the forward of the 2021 Budget Review document.

“Debt is now expected to stabilise at 88.9% of GDP in 2025/26. Over time, debt stabilisation will reduce borrowing costs and the cost of capital, attracting investment that can support the economy,” he adds.

“Government’s chosen fiscal path is not easy, but it will support higher levels of economic growth and enable the country to avoid a debilitating debt spiral,” says Mogajane.

This article first appeared on Moneyweb and was republished with permission.

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