Highlights of South Africa’s 2020 Medium-Term Budget

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Below are the highlights of South Africa’s 2020 medium-term budget policy presented by Finance Minister Tito Mboweni in Cape Town on Wednesday.

  • State climbs, stabilizing in five years – achieved mainly through a freeze in state-worker pay
  • Government debt surges, with forecasts exceeding those in the June adjustments budget
    • Gross debt is set to peak at 95.3% of GDP in 2025-26, from 81.8% this year
    • That’s higher than the 87.4% peak that Mboweni predicted in June reached in 2023-24, albeit as the best-case scenario. The projections are well off the “active scenario” that the minister spoke of then
    • “The probability of a debt trap – in which rising debt-service costs are increasingly paid from additional borrowing – has increased,” Treasury says in the budget statement
    • Debt service costs seen at 18.3% of spending in 2023-24 compared with 12.9%
    • Treasury sees the consolidated gap at 15.7% of GDP this year (the same as was predicted four months ago)
    • It then narrows to 10.1% next year and 7.3% by 2023-24
    • Tax collection is seen 8.7 billion rand less than the June projection
    • Treasury estimates tax increases of 5 billion rand in 2021-22, while acknowledging that the scope for raising taxes be exhausted as evidence suggests they have a negative impact on economic growth
    • The focus will be on reducing spending, with expenditure savings of 300 billion rand over three years compared with previous budget projections
    • The bulk of that is from the state wage bill through a pay freeze for this year and the next three
    • Expansion is seen at 3.3% next year and 1.7% in 2022
    • The national government borrowing requirement declines to 602.9 billion rand in 2021-22 from 774.7 billion rand
    • Government doesn’t anticipate increasing auction levels this year, will continue with bond-switch program
    • Support for Eskom is reduced by 4.2 billion rand over the medium term

    — With assistance by Michael Cohen, and Paul Vecchiatto

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