Wednesday, January 26

SA promises moderation of expenses – Moneyweb

South Africa’s National Treasury pledged Thursday to cut the deficit and curb debt in its medium-term budget, saying it will not commit to new long-term spending despite windfall gains from high commodity prices. .

Africa’s most industrialized nation was hit hard by the Covid-19 pandemic last year, but its economy unexpectedly recovered strongly in 2021 as global demand for its exports, such as metals, surged.

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The Treasury now sees the deficit at 7.8% of gross domestic product (GDP) this fiscal year, up from 9.3% forecast in February’s main budget, and gross debt peaks at 78.1% of the GDP in 2025/26 compared to 88.9% observed in February.

The improved projections were influenced by a GDP adjustment made by the statistics agency in August.

The Treasury said it will stick to a disciplined fiscal strategy and set a new goal of reducing the deficit to 4.9% of GDP in 2024/25.

The Treasury now forecasts that GDP will expand 5.1% this year, compared to 3.3% forecast in February.

“The economy has recovered faster than expected. However, the recent rise in commodity prices, which has supported GDP growth and tax revenue, is considered temporary, ”he said in his budget review.

“The government will not commit to new long-term expenditures in response to temporary windfall income.”

Cautious approach

The new pledges come a week after the ruling African National Congress recorded its worst election result since taking power at the end of apartheid, garnering less than 50% of the vote for the first time amid frustration over poor services. and the repeated corruption scandals.

The coronavirus crisis has sparked a heated debate over whether the country’s already generous social protection programs should be expanded.

But the Treasury said additional funding for social grants was dependent on revenue results and that the cabinet would make a decision in time for the February 2022 budget, sticking to the cautious approach for which it has become known.

“In the absence of faster and more job-creating growth, it is essential to maintain social protection in a sustainable way,” he said.

The Treasury said it would provide R2.9 billion to state defense company Denel to help pay off some of its debt and that it had provisionally set aside R11 billion for state insurer Sasria in the wake of civil unrest in July.

Duncan Pieterse, a senior Treasury official who oversees asset and liability management, said Denel’s guarantee terms meant the state had to step in.

Beyond the amounts to Denel and Sasria, the Treasury said there will be no new money for state-owned companies in the medium term.

“We have to practice tough love,” Finance Minister Enoch Godongwana told reporters, referring to efforts to end repeated bailouts of state-owned companies.

Godongwana, who was named in a cabinet shakeup in August, said he was “generally … on the same page” from a fiscal standpoint as his predecessor, Tito Mboweni.

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