/ 26 October 2016

Key numbers to watch out for in today’s midterm budget

Finance Minister Pravin Gordhan delivers his 2016 budget speech.
Finance Minister Pravin Gordhan delivers his 2016 budget speech.

The heat will be on South African Finance Minister Pravin Gordhan when he delivers his mid-term budget on Wednesday at a time when the economy is stagnating, the nation stands on the brink of a junk credit rating and universities have been rocked by student protesters demanding free education. Here’s are some of the key issues to look out for:

How gloomy is the growth outlook
While Gordhan forecast in February that the economy would grow 0.9% this year, soft commodity prices, a lackluster global economy and a crippling drought have put that target beyond reach. The 2016 growth rate will probably be just 0.4%, according to the median estimate of 24 economists surveyed by Bloomberg. The International Monetary Fund is even more pessimistic, forecasting an expansion in gross domestic product of 0.1%.

Will treasury stick to its budget deficit targets?
The malaise in the economy is curbing tax revenue, frustrating Gordhan’s efforts to rein in the budget deficit – key to maintaining an investment-grade credit rating. The fiscal gap is likely to be 3.4% for the year through March 2017, and narrow to 3% by fiscal 2019, according to the median estimates of economists surveyed by Bloomberg. That compares with a deficit target of 3.2% for the current fiscal year, 2.8% for fiscal 2018 and 2.4% the year after that in the February budget.

How will debt levels be affected
Gross loan debt as a percentage of GDP shot up to 50.5% in the 2016 fiscal year, from 41% just three years earlier. The ratio is projected to peak at 51% next year, before declining to 50.5% in fiscal 2019, according to the February budget. Ratings companies and investors are likely to frown on any slippage of that target.