Charts That Show South Africa's Mounting Budgetary Pressures

  • Debt climbs as growth, tax revenue fall short of target
  • Tax shortfall is projected to surge despite higher rates

South African Finance Minister Malusi Gigaba painted a picture of an economy struggling under the weight of lackluster growth and a rising debt burden when he delivered his budget update in Cape Town on Wednesday.

The following charts illustrate the deterioration in the country’s finances and the challenges Gigaba faces:

With growth and tax revenue falling short of target, the government has increasingly turned to the bond market to fill a hole in the budget. Gross government debt is projected to jump to about 60 percent of GDP by 2021. Higher local and foreign-debt issuance is likely to weigh on South African bonds, which already have yields among the highest in emerging markets.

Interest payments will amount to 163.3 billion rand ($11.7 billion) in the current financial year and are set to grow by an average 11 percent annually for the next three years. Borrowing costs are projected to rise to about 15 percent of revenue by 2021, crowding out other spending.

The budget deficit is projected to jump to 4.3 percent of gross domestic product in the current fiscal year, compared to the 3.1 percent predicted in the February budget, and be maintained at 3.9 percent for the next three years. The Treasury had previously pledged to narrow the gap to 2.6 percent by 2020.

A 50.8 billion rand revenue shortfall is expected this fiscal year, rising to as much as 89 billion rand in 2020, despite income-tax increases in two of the past three fiscal years. While the Treasury needs to raise more money, it’s concerned additional levies may be a further brake on growth and encounter resistance from already-overburdened taxpayers.

— With assistance by Colleen Goko, Arabile Gumede, Robert Brand, and Paul Vecchiatto

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