South Africa’s growth outlook for 2016 has worsened since finance minister Pravin Gordhan delivered his budget speech in February and is now expected to be between 0,1% and 0,4%, the parliamentary Budget Office said on Wednesday.
Briefing a joint committee meeting of MPs that belong to parliament’s three finance committees, the Budget Office said South Africa will experience its lowest annual GDP growth in five years due to a poor outlook for investment and private consumption, fiscal consolidation, slowdown in public spending and a subdued global growth outlook.
The country’s high debt to GDP ratio is also a great concern and has climbed from 26% in 2009 to close to 50%. The cost of servicing debt could increase significantly if South Africa gets a sovereign credit rating downgrade at year-end.
Gordhan said on a previous occasion that South Africa will soon owe close to R2 trillion and if the country is to get a ratings downgrade in December the interest that needs to be paid on these loans will increase significantly. Of the R1,4 trillion that South Africa has spent this year, R160bn will be spent on interest payable.
On Wednesday, Mohammed Jahed, director of the parliamentary Budget Office, said the persisting budget deficits in a context of slow economic growth has raised concerns about the sustainability of South Africa’s fiscal framework.
The objective is to return South Africa to a sustainable fiscal trajectory by stabilising debt as a share of GDP.
In addition, the Budget Office expected a shortfall in total tax revenue collection of R39bn. Tax revenue for the first five months of 2016/2017 shows that the tax adjustments (announced in the February budget) have led to a 6,2% increase in total tax revenues when compared to the same period last year. This is, however, 3,7% lower than the 9,8% predicted in February.
