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The SA Daily 24 February 2020

Budget 2020 centre stage

Shireen Darmalingam

  • The Budget 2020 this Wednesday will take centre stage. We expect a budget deficit somewhat wider than the MTBPS had forecast for FY19/20 (around 6.5% of GDP, vs 6.2%), similar for FY20/21 (6.8% of GDP), and smaller for FY21/22 (5.9%). Our fiscal forecasts are negatively affected by a lower nominal GDP denominator assumption. The entire forecast period’s revenue estimates are tempered by the expected revenue shortfall in FY19/20. The magnitude of SA’s fiscal shortfall implies that the typical tax hikes and spending cuts are no longer adequate; deeper changes are therefore required to prevent a further debt spiral.
  • Finance Minister Mboweni is expected to announce modest spending cuts. A set of small to moderate tax hikes (such as above-inflation increases in the fuel levy and “sin” taxes) as well as fiscal drag are also likely.
  • However, the long-term fiscal trajectory remains high and unfavourable, even with reforms, spending cuts, curbing the wage bill and hiking taxes. SA’s debt also puts its only investment grade rating at risk. Moody’s currently still has the sovereign rated at Baa3, with a negative outlook. Moody’s had signalled in its latest rating review that, for it to preserve the credit rating, there should have been substantial change by the time of the 2020 Budget. A downgrade to junk status will trigger SA’s expulsion from the World Government Bond Index (WGBI).

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