CAPE TOWN (Reuters) -South Africa’s National Treasury said on Wednesday that this fiscal year’s budget deficit would be wider and public debt higher after it was forced to backtrack on a proposed increase in value-added tax (VAT).
The Treasury was presenting a third version of the 2025 budget, after disagreements in the country’s coalition government derailed two previous attempts.
Scrapping the plan to raise VAT, coupled with lower economic growth forecasts, had resulted in medium-term tax revenue projections being revised down by 61.9 billion rand ($3.5 billion), the new budget showed.
The Treasury now projects a consolidated budget deficit of 4.8% of gross domestic product (GDP) in the fiscal year that started on April 1, wider than the deficit of 4.6% of GDP seen in the previous budget version presented in March.
Gross debt is seen stabilising at 77.4% of GDP in the 2025/26 fiscal year, higher than the 76.2% of GDP projected in March.
Since the 2008-2009 global financial crisis Africa’s biggest economy has struggled to achieve growth rates high enough to make a meaningful dent in high levels of inequality and unemployment.
Over that time public debt has shot up as the government has failed to rein in runaway spending, prompting successive credit rating downgrades.
The economy is now expected to expand 1.4% this year, down from growth of 1.9% estimated in March, the Treasury said on Wednesday.
It has revised down consolidated government spending by 69.4 billion rand over a three-year period.
Fundi Tshazibana, a deputy governor of South Africa’s central bank, told reporters at a press conference that policymakers were not yet ready to make an announcement on changing South Africa’s inflation target, currently a range of 3%-6%.
The prospect of a lower inflation target has lifted the rand in recent days, as traders speculated that a lower target could feature in Wednesday’s budget following comments by a deputy finance minister at an investment conference.
($1 = 17.8774 rand)
(Reporting by Kopano Gumbi and Wendell Roelf in Cape Town and Olivia Kumwenda-Mtambo and Sfundo Parakozov in Pretoria;Additional reporting by Bhargav Acharya in Johannesburg;Editing by Alexander Winning)
