Gordhan warns of higher deficit
Analysts say spending overrun and tax shortfall could lift budget gap to R190bn
September 16, 2009
By Ethel Hazelhurst
When Finance Minister Pravin Gordhan presents his first mini budget next month, he may reveal that the expected budget deficit for the 2009/10 fiscal year has widened to between 7 percent and 8 percent of gross domestic product (GDP).
The deficit - which is the gap between revenue collection and government spending - was only 1 percent of GDP in the previous fiscal year.
At the time of the February budget, this year's deficit was projected at 3.9 percent.
But economists have been doing their sums and have concluded that the news will be far worse.
Dawie Roodt, the chief economist of the Efficient Group, urged the government to sell its nearly 40 percent stake in Telkom - which has a market capitalisation of nearly R23 billion - to help fund the deficit.
"But that would mean using the dreaded word 'privatisation'," Roodt said.
The government turned its back on privatisation about 10 years ago and since then has kept its often dysfunctional parastatals within its fold.
However, since Telkom has shed its 50 percent stake in Vodacom, the sale of the government's Telkom shares would bring in only about R9bn at the current share price - which would not go far towards filling the yawning gap between spending and revenue.
Gordhan told Reuters yesterday that tax receipts were expected to be at least R60bn short of target - after an earlier forecast of R50bn to R60bn.
Reuters also reported that, in a written reply to a parliamentary question, Gordhan said that the fiscal deficit would be considerably higher than the original budget forecast of 3.9 percent of GDP.
Roodt estimated that the government's deficit, which was put at just over R90bn in February, was likely to have more than doubled by the year's end, possibly to as high as R190bn.
An early indication of the extent of the problem came in June, when Gordhan said he was expecting a shortfall in revenue of up to R60bn.
Roodt forecast a bigger shortfall - R70bn. And he estimated that expenditure would overrun by between R10bn and R20bn.
In addition, he believes there will be additional funding requirements of up to R20bn from loss making state enterprises, or "so-called below the line items".
"The bottom line is a deficit of R'bn to R190bn," he said.
Ian Marsberg, a macro strategist at Absa Capital, has a similar sum.
"Our latest central forecast is for a 7.7 percent deficit, while 8.5 percent is a worst case scenario," he said.
Marsberg said revenue collection in the first four months of the fiscal year was nearly 10 percent below the same period last year. And he said government spending in the period was about 28 percent higher.
He conceded that government expenditure trends were "notoriously difficult to estimate", but said "the risks to the expenditure side of the budget are tilted firmly to the upside".
Funding the deficit will be problematic in the current environment.
Roodt said that the government could draw on its cash balances, "which were worth about R100bn at the start of the fiscal year".
However, he said the government was unlikely to draw more than R50bn - because of the need for a cash cushion and also because R70bn is kept at the Reserve Bank and withdrawals would interfere with monetary policy.
"I believe they will raise R20bn to R30bn on the local capital market," Roodt said.
"They may have started already. And they can raise about R15bn through treasury bills to take up the short-term slack."
"And they can borrow R10bn to R20bn abroad," he added.
|
|
