South Africa’s fiscal deficit will be considerably higher this financial year due to a widening tax shortfall, now seen at at least R60-billion, Finance Minister Pravin Gordhan said on Tuesday.
Africa’s biggest economy has slumped into its first recession in 17 years, knocking company tax and VAT through weak consumer spending, leading to a big revenue shortfall for 2009/10.
”The latest revenue data suggests that tax receipts will be at least 60-billion below target this year, which will result in a considerably higher fiscal deficit than originally expected,” Gordhan said in written reply to a parliamentary question.
The Treasury has previously estimated revenue will come in between R50-billion and R60-billion short, warning that the 3,8% of GDP budget deficit — itself a sharp widening from the 1,2 % of GDP shortfall for 2008/09 — will not be met.
Analysts predict the deficit will come in at about 7%, leading to a borrowing requirement of more than 10 % of GDP.
The shortfall in the first quarter — with the economy mired in recession — was 10%, partly due to the government choosing to keep its spending relatively high to help boost the economy.
The Treasury will release updated budget and economic forecasts on October 27.
Gordhan reiterated that the government would keep borrowing in check due to tough lending conditions.
”Government is mindful of the difficulties of raising large amounts of debt in the present environment, and that maintaining a prudent level of borrowing costs and inflation low is critical to sustaining South Africa’s developmental objectives,” he said.
The Treasury has ramped-up local borrowing over the past few months, and raised $2-billion through a foreign bond, double the original target.
Gordhan said South Africa’s economy may have reached the bottom of a sharp downturn, but repeated the recovery would be slow and gradual as the world rebounded from the worst crisis in 80 years.
Low real interest rates should help to lift consumer spending in the second half of 2009.
”Fiscal and monetary policy measures, which have resulted in a much wider budget deficit and lower interest rates, are working in tandem to support domestic demand and investment in the economy,” he said.
The central bank has cut its repo lending rate by five percentage points to 7% since December despite inflation remaining outside its 3% to 6% target for more than two years. It was at 6,7% in July.
Gordhan said state-owned development finance institutions would play a major role in bolstering the economy.
The Development Bank of Southern Africa’s capital structure would be enhanced by increasing its callable capital to R20-billion from R4,8-billion, helping it leverage on its borrowing up to R140-billion.
The Industrial Development Corporation intended to inject R70-billion into the economy over the next five years, with R6,1-billion set aside for companies hit by the global crisis, he said. — Reuters