ACCA: Budget deficit a challenge for SA in light of downgrades, Covid-19

ACCA's Pat Semenya highlights the perfect storm of debt and deficit facing SA with ratings downgrade.

On 26 February, Minister of Finance Tito Mboweni delivered his budget speech, which was focused on economic recovery, along with supporting education, health and social development, and curbing wasteful government expenditure. 

However, one of the challenges that the minister outlined in his budget speech, is that the budget deficit sits at 6.8 percent, which entails more debt to fund the shortfall. The cost of servicing debt remains at an all-time high, with a total of R229 billion (about 16 percent of total government spending) going towards debt servicing costs. 

“Data from the National Treasury indicates that there is little indication that the ever-increasing cost of servicing debt, with the widening deficit, will be slowing down any time soon,” says Pat Semenya from ACCA. “Add to this the junking of South Africa by Moody’s – the last of the ratings agencies to maintain our country’s investment grade – and the loans that government has had to take to deal with the impact of Covid-19, and loan repayments will remain a challenge for many years to come.” 

The ever-widening budget deficit should be an area of great concern. In his speech the finance minister re-iterated the importance of ensuring that the economy turns around and can be noted in significant spend allocation to economic and community development functions as well as social development.