South Africa budget deficit grows as economy slows

PRETORIA – South Africa collected slightly less revenue than forecast in 2008/09 after a weaker economy cut tax revenue, leading to a budget deficit of 1.2 percent of GDP, the Treasury said on Wednesday.\r\n

It said the country’s revenue service took in 625.57 billion rand in tax in the financial year to the end of March, 2.12 billion rand less than the 627.69 billion rand forecast in the February budget.

The Treasury had predicted the budget would swing from a surplus to a deficit of 1.0 percent of gross domestic product.

A global economic slowdown and weak household demand have knocked the economy, resulting in its first contraction in a decade in the fourth quarter of 2008 and expectations of recession in the first quarter of this year.

Manufacturers have been particularly hard hit, while mining output has fallen, leading to less profit. Household spending is also under pressure.

"This result has been achieved in a climate of rapidly deteriorating global economic conditions and is therefore testimony to the relative robustness of the South African economy to date," Finance Minister Trevor Manuel said via a satellite linkup from London.

"It also highlights the benefits to South Africa of our sound fiscal and monetary policy choices we made over the past 15 years."

The Treasury said the higher deficit would not have any implications for the borrowing requirement as it had already increased the pace of bond issuance.

Manuel announced in the February budget the government would drive up spending to boost slowing growth and shift the budget back into deficit after several years of surplus. 

He predicted a deficit of 3.8 percent for 2009/10.

The 2008/09 revenue outcome was 9.2 percent higher than the tax collected in 2007/08, largely due to a bigger tax base. The estimate for 2009/10 was 659 billion rand, up 5.4 percent.

The Treasury said in February the public sector borrowing requirement would jump to 7.5 percent of GDP in 2009/10, or 185.7 billion rand, from 3.9 percent.

Local bond issuance had been forecast to almost double, while the government also planned to raise about $1 billion in the international market.