MTBPS Preview: Commitment to medium term fiscal consolidation expected to be maintained against risk of credit rating downgrades

19 Oct 2017

Annabel Bishop

Chief Economist

The 2017 Budget identified the main risks to the fiscal position over the medium term to be “the macroeconomic outlook, budget execution, policy uncertainty and financially distressed state-owned companies."

Expenditure continues to meaningfully outpace revenue
  • The 2017 Budget identified the main risks to the fiscal position over the medium term to be “the macroeconomic outlook, budget execution, policy uncertainty and financially distressed state-owned companies.” Since the Budget was tabled in February 2017, almost all of these risks remain. Namely, the economy is underperforming, partly as a function of heightened perceived policy and political uncertainty, and several state-owned companies are financially distressed.
  • The Medium Term Budget Policy Statement (MTBPS) to be presented on 25th October 2017 is expected to lower economic growth forecasts, relative to those contained in the 2017 Budget. Lower growth will be a key contributor to the expected deterioration in fiscal indicators.
  • The weaker than expected GDP growth outcome is likely to see the consolidated budget deficit figure for 2017/18 come in higher, in the region of -3.5% of GDP, instead of the -3.1% of GDP deficit forecast in the 2017 Budget.
  • Achieving a stabilisation of debt ratios will partly rely on addressing the sizeable fiscal risks associated with the realisation of contingent liabilities and/or recapitalisation of state-owned enterprises (SOEs).
  • In view of the heightened risk of further sovereign credit rating downgrades, the medium term outlook presented in the MTBPS is expected to demonstrate some degree of fiscal consolidation and a stabilisation of debt ratios. As a point of reference, National Treasury has expressed a commitment to fiscal consolidation plans on a number of occasions over the past few months. 
Main budget revenue and non-interest spending

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