SA to Post First GDP Deficit in Three Years

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 February 2009

Subscribe to the Industry News newsfeed

The global credit crunch and the local economic slowdown and lower tax collections is expected to wipe more than R45 billion off Government's balance sheet in 2008/09 tax year and will result in South Africa posting a GDP deficit for the first time in 3 years.

This is the opinion of Anton Kriel, Director of the Cape Town office of global auditing firm BDO Spencer Steward. “Next year I expect the Minister of Finance – whether it be Trevor Manuel or his successor - to be in the unenviable position of presenting a deficit of at least 2%,” he says. “This will follow this year's announcement that we have not achieved our target of 0.6% budget surplus for the 2008/09 tax year.”

Kriel says that while Manuel did an outstanding job of managing the country out a deficit of more than 5% when he took the position of Finance Minister in 1996, last year's surplus will be the last posted for a number of years. “I don't foresee South Africa reaching the lows of UK and the US in the short term, however I expect to see significant debt being incurred next year to fund the deficit and increased expenditure,” he says.

The reasons for this are simple he says: “The buoyant global economy has been replaced by the global credit crunch which is seeing predictions of millions of retrenchments worldwide over the next 12 months and bankruptcies and liquidations occurring on a scale not seen before. The local slowdown, though less dramatic, is producing similar results. Businesses are under severe pressure and those companies that are to survive will make have to cut costs, which in the high interest rate environment together with inflationary pressure is difficult. Over the next 12 months we will see an across-the-board drop in business profits and a subsequent reduction in the amount of tax that SARS can collect. Notwithstanding this Trevor Manuel is expected to announce that the Government will maintain – or even increase - Government spending ahead of the 2010 World Cup and beyond.”

It is public knowledge that the ANC is putting significant pressure on Manuel to commit funds to support the ANC objectives of alleviating poverty through government interventions. “Over and above the increased spend promised in 2008 we expect him to announce some sort of poverty alleviation programme or award more funds for the social grant schemes,” he says. “The question is how much and will this be over and above investment in education, safety and security and infrastructure or will it replace some of this spend?”

Disclaimer: Please note that this article is at least 12 months old.
Any information herein was accurate when published on 6 February 2009