South Africa’s economy to grow by 0.9% in 2020

In its budget review just over a year ago, Treasury had projected real economic growth of 1.5% in 2019 and 1.7% in 2020.

South Africa’s economy is expected to grow by 0.9% in 2020, National Treasury said on Wednesday.

This is a downward revision from the 1.7% projection made in the February 2019 budget.

In its budget review just over a year ago, Treasury had projected real economic growth of 1.5% in 2019 and 1.7% in 2020.

“We now expect real growth of only 0.3 percent in 2019 and 0.9 percent in 2020. In 2019, consolidated government spending reached a historic high of 36% of GDP [Gross Domestic Product],” said Treasury in the current budget review.

The increase it said, reflects downward revisions to the size of the economy, spending plans based on an assumption of economic growth that has not materialized, and increased demands from financially distressed state-owned companies.

Treasury said while that makes a significant contribution to development, this level of spending is unsustainable, and results in continued high deficits and debt accumulation.

 Increased borrowings

In addition, the impact of low growth on revenue collection has been a considerable one.

 “Government expects to collect R63.3 billion less revenue than projected at the time of the 2019 Budget. The state is borrowing at an increased rate to fund operations, with the deficit projected at 6.3 % of GDP this year.”

Debt-service costs now absorb 15 cents of every rand government collects.

The National Treasury said that by 2022/23, interest payments will exceed health spending.

To counter this, and as a major step towards fiscal sustainability, the government has reduced the main budget expenditure baseline by R156.1 billion over the next three years in comparison with the 2019 Budget projections.

“This is approximately 1% of GDP per year,” noted the document.

The net reduction is mainly the result of the following changes over the medium term:

Reductions to baselines of R261 billion, which includes an R160.2 billion reduction to the wage bill of national and provincial departments, and national public entities.

Reallocations and additions totaling R111.1 billion, of which R60.1 billion is set aside for Eskom and South African Airways (SAA). 

The National Treasury also said that non-interest expenditure is forecast to grow at 3.8% over the next three years, down from an average of 8.4% over the past three years.

“Despite slower growth in spending, the deficit is forecast to remain in excess of 6% of GDP next year, as a result of lower economic growth and tax revenue projections. The scale of the challenge requires fundamental changes to support economic growth, continued restraint in spending growth and improved spending efficiency,” it said.

(With Inputs from South African Government Press Release)