South Africa’s fiscal crisis: new data shows signs of progress

The headquarters of the Reserve Bank.

  • The SA Reserve Bank quarterly bulletin shows that South Africa recorded its first primary budget surplus since 2018.
  • The primary surplus excludes interest charges, but gives an indication that the government can extract the necessary resources from the economyy to service the debt.
  • Gross loan debt for the first quarter of the current fiscal year was 68.8% of GDP. This compares to the February Treasury budget estimate of 80.3%.

South Africa recorded its first quarterly primary budget surplus since 2018 in the three months leading up to June, a sign that the Treasury’s efforts to align spending with revenue are paying off.

The government’s primary balance rose to a surplus of R 9.8 billion, or 0.6 percent of gross domestic product, in the first quarter of FY2022, compared with a deficit of 2.2 percent of GDP in the last few years. three months prior, according to the South African Reserve Bank’s Quarterly Bulletin released Tuesday.

A primary surplus, which excludes interest charges, suggests that the government can extract resources from the economy to service the debt.

This year, the Treasury has shifted focus to make a primary budget surplus its most critical fiscal anchor, instead of a spending ceiling.

In February, the Treasury forecast a primary surplus of 0.1% of GDP in 2024-25, aimed for a positive balance of 0.3% of GDP in the long run, and saw debt stabilize at 88.9% of GDP in the past. during fiscal year 2026.

The medium-term budget slated for Nov. 4 is expected to show improvement in these parameters, after changes in the way GDP is calculated showed the economy to be larger than expected and with estimates of tax revenue overruns. due to a windfall in mining profits.

The government is “on track” to achieve a primary surplus by the middle of the decade, Edgar Sishi, acting head of the Treasury’s budget office, told a tax conference last week.

While the latest data reflects an improvement in economic activity since restrictions were heightened to curb the coronavirus pandemic, South Africa remains stuck in its longest cycle of decline since World War II.

Weakening cycle

The economy entered the 94th month of a weakening cycle in September, official data showed.

However, it is possible that South Africa has already entered a bullish cycle given the strong recovery in output from 2020, when the economy has contracted the most in at least 27 years, said the central bank in an email response to questions.

The central bank is monitoring more than 300 indicators representing economic processes such as production, sales, employment and prices to determine the direction of the trend and partly waits for revised data to identify a turning point, it said. declared.

The last cycle of major economic decline lasted 51 months between 1989 and 1993, when the former all-white government renewed the state of emergency and the country prepared for its first democratic elections.

Here are some of the other key points from the Quarterly Bulletin:

  • Gross loan debt for the first quarter of the current fiscal year was 68.8% of GDP. This compares to the February Treasury budget estimate of 80.3%.

Source: Reserve Bank SA

  • There were foreign direct investment inflows of R 17.4 billion in the three months to June, compared to R 6.1 billion inflows in the previous quarter.
  • Portfolio investment inflows of 4.9 billion rand were recorded, compared to outflows of 6.4 billion rand in the first quarter.
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