PRETORIA- South Africa forecast public debt would peak sooner and at a lower level than earlier thought when it unveiled its annual budget on Wednesday, with mining tax receipts expected to keep supporting revenues and spending seen growing only modestly.
President Cyril Ramaphosa's government is trying to stabilise the public finances of Africa's most industralised economy after years of rapid debt accumulation under his predecessor Jacob Zuma.
The COVID-19 pandemic initially disrupted those efforts, widening the budget deficit and driving unemployment to a record above 30%. Last year, however, the economy rebounded quicker than expected as the mining sector capitalised on strong prices of key exports like metals and coal.
The National Treasury said in its budget review that while the boost from commodities would fade somewhat, it would still produce "significant additional revenue over the next three years". This year's tax collections are seen 182 billion rand ($12.10 billion) above the 2021 estimate largely due to mining.
Despite the improved outlook, Finance Minister Enoch Godongwana told parliament that difficult trade-offs were still required.
The Treasury allocated 44 billion rand to a 12-month extension of a 350 rand relief payment introduced to help the poor during the pandemic, but Godongwana stressed further support would require new taxes or spending cuts elsewhere.
As a result of higher mining receipts, the Treasury now sees a consolidated budget deficit of 5.7% of gross domestic product (GDP) in the fiscal year that ends in March, down from a 7.8% estimate in November.
While it maintained its 6.0% forecast for next year's shortfall, it sees the gap narrowing to 4.8% and 4.2% in the following two years.
Gross debt to GDP is seen peaking at 75.1% in 2024/25, compared to a peak of 78.1% in 2025/26 forecast in November.
The government cited negotiations with trade unions over the public sector wage bill and bailout requests from distressed state companies among potential risks, and kept its economic growth projections unchanged at a meagre 1.6% in 2023 and 1.7% in 2024.
"We do not aspire to be a below 2% growth economy. We are capable of so much more," Godongwana said, adding work on new reform proposals to raise potential growth was under way.
Godongwana said the Treasury was working on a sustainable and fair solution to state power utility Eskom's mammoth debt burden, adding that it would be contingent on Eskom following through on a turnaround plan and restructuring. The utility's frequent power plant breakdowns and resulting electricity cuts have choked economic growth for over a decade.
Godongwana told parliament the utility was unable to fund all of its debt and the Treasury needed to "create some magic" to address that. ($1 = 15.0392 rand)
(Reporting by Alexander Winning and Olivia Kumwenda-Mtambo in Pretoria and Wendell Roelf in Cape Town; Additional reporting by Promit Mukherjee and Emma Rumney in Johannesburg Editing by James Macharia Chege and Tomasz Janowski) ((firstname.lastname@example.org; Tel: +27 10 346 1084; Reuters Messaging: email@example.com))