THE 2022 Budget aims to stabilise the debt to GDP ratio near 75 percent compared with 78 percent projected in the November 2021 Medium-Term Budget Policy Statement (MTBPS) and forecasts in the October 2020 MTBPS, that saw the ratio rise to 95.3 percent in 2025/6.
The projections are, however, far worse than the February 2019 Budget projection of stabilising the ratio near 60 percent as the projection then was at the peak of 60.2 percent of GDP in 2023/24.
Relative to the 2021 MTBPS projections, the National Treasury expects the deficit to narrow at a slightly faster pace, while improved cash balances reduce the borrowing requirement and debt issuance over the medium term. Debt is now projected to stabilise at 75.1 percent of GDP in 2024/25, one year earlier than projected in the November 2021 MTBPS.
The Treasury reiterated its message that without measures to reduce government expenditure, a continued increase in debt and debt-service costs would crowd out economic and social expenditure.
If economic growth does not strengthen in the period ahead, more difficult fiscal adjustments would be required to return the public finances to a sustainable path.
There are three main risks to reducing the fiscal deficit in the years ahead:
The first was a widening Budget deficit due to lower economic growth as a result of renewed waves of the Covid-19 pandemic, which would most probably increase the cost of funding alongside the stock of debt.
The second risk factor related to inflation and exchange-rate risks as unanticipated increases in inflation or a depreciation in the rand exchange rate would increase the cost of outstanding inflation-linked or foreign-currency debt. This risk is in particular related to the redemption of foreign loans.
The third risk related to South Africa’s sovereign credit ratings, which have been downgraded to junk status since April 2017. Further downgrades deeper into the sub-investment junk territory would result in a higher Budget deficit, rising debt levels and weak economic growth.
BUSINESS REPORT ONLINE