Falling revenue and recession will hurt public finances- South Africa’s National Treasury

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Reuters reports that South Africa’s National Treasury said falling revenues and a recession means the country will struggle to finance the public services that make up the largest part of its budget.

South Africa, Africa’s most industrialised economy slipped into a recession in the second quarter of the year after nearly a decade. The development made the country face political uncertainty and negatively affected its currency and financial markets.

The medium term budget, which will be delivered next week by the new finance minster, Tito Mboweni, will be scrutinised for details of President Cyril Ramaphosa’s stimulus plan to pull the economy out of recession and avoid further ratings downgrades.

The National Treasury’s Director General Dondo Mogajane told a parliamentary committee that “the contraction of our public finances is placing tremendous stress on us and our ability to finance public services and this threatens the affordability of planned expenditure”.

South Africa’s National debt is approaching $175 billion, with debt projected to get to 60 percent of the gross domestic product in 2020. In addition, debts of state firms, particularly Eskom are increasing rapidly while tax revenues are plummeting. The Treasury also warmed of a shortfall in revenue collection in the current fiscal year after a 50.8 million rand gap in the 2017/18 fiscal year which ended March.

President Ramaphosa announced a multi-billion dollar stimulus programme earmarking funds for job creation and infrastructure development. The budget was part of his plans to make good on a pledge to revive South Africa’s ailing economy. Although his appointment of Mboweni as the country’s fourth finance minister in two years, replacing Nhlanhla Nene, was well received, there are still doubts over his ability to deliver growth.

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