Figure 1: Consolidated budget deficit actuals and National Treasury forecasts
  • The 2017 Medium Term Budget Policy Statement (MTBPS) outlined that in the absence of a fiscal adjustment package, the consolidated budget deficit would rise to 4.3% of GDP in 2017/18 from 3.4% in 2016/17 and would remain at 3.9% over the medium term framework period of 2018/19 to 2020/21.
  • The postponement of fiscal consolidation in the MTBPS, and the absence of a stabilisation of debt ratios, was viewed as credit negative by the rating agencies.
  • To avoid further credit rating downgrades, the 2018 Budget will need to implement material revenue and, particularly, expenditure side adjustments to achieve fiscal consolidation over the medium-term. A degree of fiscal consolidation was already expected to be presented in the 2018 Budget based on a statement from the National Treasury in November 2017 that “(t)he 2018 Budget will outline decisive and specific policy measures to strengthen the fiscal framework”.
  • We project the revenue and expenditure side measures, along with slower CPI inflation and slightly higher nominal GDP growth, will yield a consolidated budget deficit of 4.0% of GDP in 2018/19. The deficit is then forecast to compress to 3.4% of GDP in 2019/20 and 2020/21 on fiscal consolidation.
  • The tightening of fiscal levers (adjustments to revenue and expenditure projections) is a key component of rebuilding confidence and avoiding further credit rating downgrades. Beyond this, the 2018 Budget will need to elaborate on the other “short-term confidence-boosting measures” outlined in the 2017 MTBPS. These include further detail on managing “fiscal and economic risks associated with state-owned entities”; and creating “policy certainty by finalising key legislative and policy processes”.
Figure 2: Confidence and policy uncertainty

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