Deficit projected to narrow to 3.5%

Wednesday, February 21, 2018

Finance Minister Malusi Gigaba says government expects the budget deficit to narrow to 3.5% over the next three years.

The Minister said this when he tabled the 2018 Budget at the National Assembly on Wednesday.

“The consolidated deficit is projected to narrow from 4.3% of GDP in 2017/18 to 3.5% in 2020/21.

“The main budget primary deficit closes over the [the next three years], helping to stabilise the gross debt-to-GDP ratio at 56.2% of GDP in 2022/23, and declining thereafter.”

The Minister said the fiscal proposals will cause economic discomfort, but they are necessary to protect the integrity of the public finances.

“Acting now to strengthen the fiscal position will improve the outlook for the economy and increase space for future investment growth.

“It is the right thing to do. We dare not borrow irresponsibly, leaving it to future generations to repay,” he said.

The Minister said government’s fiscal interventions also demand greater efficiency in the use of funds across the public sector.

He said government recognised the need to shift spending away from consumption towards higher investment.

“Over the past decade, the public sector has invested R2.2 trillion in economic and social infrastructure. Yet weaknesses in project preparation, execution and delivery have resulted in lengthy delays and cost overruns,” he said. 

The Minister said to improve this, government has established a Budget Facility for Infrastructure, to standardize and improve the management of public infrastructure projects.

“To support higher levels of capital investment and maintenance, the state needs to contain the public-service wage bill.

“Government is working to ensure that the current wage negotiations process results in a fair and sustainable agreement.

“This process will require careful consideration from all stakeholders.”

Expenditure ceiling revised down

The Minister said the expenditure ceiling has been revised down marginally from what was presented in October.

He said, however, that the small revisions are underpinned by large reductions and re-allocations.

He said that over the next three years, government’s spending framework includes:

  • Expenditure reductions approved by Cabinet amounting to R85 billion;
  • An allocation of R57 billion for fee-free higher education and training;
  • Additions to the contingency reserve amounting to R10 billion.

“In addition, all national and provincial departments were required to reduce their spending on administration. The reductions exclude compensation of employees, which is already subject to a ceiling,” the National Treasury said.

The National Treasury said that after taking account of the various adjustments to the framework, the expenditure ceiling has been revised down marginally over the medium term.

“In 2017/18, however, the expenditure ceiling is likely to be breached by R2.9 billion as a result of the recapitalisation of South African Airways (SAA) and the South African Post Office.

“These appropriations total R13.7 billion, partially offset by the use of the contingency reserve and projected underspending.” –

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