Government moves to stabilise debt as budget deficit doubles

Johannesburg – Government’s fiscal strategy over the next three years will be to narrow the deficit and stabilise the debt-to-GDP ratio, the National Treasury said on Wednesday.

“Since the 2020 Budget Review, the budget deficit has doubled, and the in-year revenue shortfall is estimated at R213.2 billion.

“These changes reflect the impact of the COVID-19 pandemic, as well as government’s response, which prioritised relief for households and businesses, alongside a major effort to protect public health.

“The consolidated deficit in the current year – estimated at 14 percent of GDP – is the largest on record.”

The National Treasury said gross national debt is projected to rise from 80.3 percent of GDP in 2020/21 to 87.3 percent of GDP by 2023/24, with debt-service costs reaching R338.6 billion in that year.

“In recent months, as the economy has started to reopen, the outlook has improved somewhat. Revenue estimates are higher than projected in the 2020 Medium Term Budget Policy Statement (MTBPS), enabling government to provide immediate support for urgent public health and social needs, while improving the debt-to-GDP outlook.

“Returning the public finances to a sustainable position will require ongoing restraint in expenditure growth and implementation of structural reforms to support economic growth.

“In this context, the fiscal strategy aims to narrow the deficit and stabilise the debt-to-GDP ratio, primarily by controlling non-interest expenditure growth.”

The National Treasury also said that it will provide continued support to the economy and public health services in the short term, without adding to long-term spending pressures; and, improve the composition of spending, by reducing growth in compensation while protecting capital investment.

“Given the continuing pandemic, the fiscal framework provides short-term support to low-income households and funding for the health policy response.

“Changes since the 2020 MTBPS include three-month extension of the special COVID-19 social relief of distress grant and the Unemployment Insurance Fund’s Temporary Employer/Employee Relief Scheme, and funding for the public employment initiative and for provincial hospitals in 2021/22.

“Up to R10.3 billion is provided for vaccine rollout for the current year and over the next two years.


“Given uncertainty around vaccination campaign costs, the contingency reserve has been increased from R5 billion to R12 billion in 2021/22. These interventions do not add to longer-term expenditure.”

The National Treasury said the consolidated deficit is projected to narrow from 14 percent of GDP in 2020/21 to 6.3 percent of GDP by 2023/24.

“Gross debt-to-GDP is now projected to stabilise at 88.9 percent of GDP in 2025/26.”

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– SAnews.gov.za

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