Mid-Term Budget Speech - Comments & Insights

By Nedgroup Investments

Summary

• National Treasury revised its GDP forecast to -7.8% in 2020, recovering to real GDP growth of 3.3% in 2021. Economic growth is expected to average 2.1% over the three‐year forecast period.

• A combination of expenditure and revenue measures is expected to narrow the main budget deficit from 14.6% of GDP in 2020/21 to 7.3% by 2023/24.

• Gross debt is projected to reach 81.8% of GDP in the current year (up from 65.6% projected in February 2020). Gross national debt is projected to stabilise at 95.3% of GDP by 2025/26.

• Debt-service costs are projected to increase from R225.9 billion in 2020/21 to R353.1 billion in 2023/24, at an average annual growth rate of 16.1%. Debt-service costs are now 4.8 % of GDP, up from 3.3% in 2016/17.

• To assist with the consolidation, government has projected tax increases of R5 billion in 2021/22.

• Revenue forecasts for 2020/21 were revised down (tax revenue in the current year is projected to be R8.7 billion lower than the June estimate).

• Funding for the large state-owned enterprises will continue. The Minister announced that South African Airways (SAA) is allocated R10.5 billion in 2020/21 for its business rescue plan, while the Land Bank’s restructuring will require R7 billion over 2021/22 to 2023/24.

Key take-outs

Downward revisions to nominal GDP have pushed up the budget deficit and debt-to-GDP ratio. The revised public debt trajectory is much worse than the ‘active scenario’ presented in the June 2020 Supplementary Budget, however, it is still not quite as dire as the ‘passive scenario’. The peak of the debt-to-GDP ratio is higher at 95.3% in 2025/26, but the ratio is projected to remain below 100% over the forecast period.

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