The South African government is forecast to be hit by a tax revenue shortfall of almost R43 billion for the tax year ending next month, Finance Minister Tito Mboweni indicated in his budget speech on Wednesday.
There were pronounced risks to the local economic outlook with the main risk of concern being power utility Eskom and its financial woes, the 2019 budget review report indicated.
The report indicated that government tax revenue for the 2019 fiscal year would come in at R43 billion under the target set at the 2018 budget speech.
“There are pronounced risks to the economic outlook. The main risk of concern is Eskom. Failure to fully implement the reconfiguration of Eskom could lead to a negative market reaction that would prompt capital outlflows, with greater pressure on the rand. It would also perpetuate weak investor confidence and reduce economic growth,” the report said.
In the worst case scenario, National Treasury is forecasting negative 1% growth this year while its best-case scenario is just over 2% growth.
Mboweni cut the National Treasury’s forecast for economic growth for this year from 1.7% to 1.5% due to “fragile recovery in employment and investment, and a less supportive global trade environment”.
By 2021, the National Treasury’s best-case scenario is growth of 3% and its worst-case scenario is 1%.
“The economic and revenue outlook has deteriorated since the October 2018 medium-term budgetary policy statement and funding pressures from state-owned companies have increased,” the medium-term budgetary policy statement said.
“Several other state-owned companies are also in financial distress and have requested government support. As a result, the contingency reserve has been revised up by R6 billion in 2019/20 and any funding provided will be offset by the sale of non-core assets. Additional reforms to strengthen the governance, finances and operations of state-owned companies will be announced in the months ahead,” the 2019 budget review report said.
State companies that are looking for bailouts include the South African Broadcasting Corporation (SABC) and Denel.
“Several state-owned companies face negative cash flows and are financing operations from debt, which has become increasingly difficult to raise. This moves them perilously close to default unless they receive some form of recapitalisation.”
In another worrying sign, debt owed to municipalities is increasing. At the end of March, debt owed to municipalities is forecast to climb to almost R159 billion from almost R99 billion at the end of March 2015.
Of debts owed by municipalities that are more than 90 days in arrears, Eskom is the major creditor – it is owed R12.8 billion – followed by water boards with R6.4 billion.
“From July 2018 to June 2019 municipal financial year, 113 municipal councils adopted unfunded budgets, up from 83 the prior year.”
The government is expecting to issue $2 billion (about R28 billion) in debt by the end of the 2019 fiscal year.
Over the next three years, the government will raise an additional $8 billion (about R114 billion) in global capital markets.
“This year’s budget underlines the National Treasury’s continued commitment to these requirements in a difficult environment in which economic growth remains weak, public debt and debt-service costs have accelerated and governance and operational concerns are manifest across the public sector,” the review report said.
“Weak economic performance and residual problems in tax administration have resulted in large revenue shortfalls,” the report said.
“The deteriorating financial position of state-owned companies has put additional pressure on the public finances,” the report added.
“The government’s efforts to reform state-owned companies and the launch of the infrastructure fund are expected to increase growth and investment in the year ahead,” the 2019 budget review report said.
For the 2020 fiscal year, consolidated government expenditure is forecast to R1.83 trillion.
A military court on Wednesday convicted Fang Fenghui, former Chief of Staff of China’s Central Military Commission Joint Staff Department, on three counts of crime.
The court sentenced him to life imprisonment according to the law.
Fang was found guilty of accepting and offering bribe as well as holding a huge amount of property from unidentified sources.
“He was also deprived of his political rights for life and had his personal properties confiscated,’’ the judgment stated.
Report says the illicit money and properties confiscated will be turned over to the state coffers.
Three Conservative MPs resigned from their party to join The Independent Group of eight Labour MPs who earlier this week formed a breakaway centrist faction in parliament.
The three MPs — Sarah Wollaston, Heidi Allen and Anna Soubry — have been highly critical of Prime Minister Theresa May’s strategy on Brexit and have voted against the government on that issue.
In a joint letter to the prime minister they accuse May of a “shift to the right” and of being “firmly in the grip” of the Brexiteer group of backbenchers, the European Research Group, and the Democratic Unionist Party.
“Instead of seeking to heal the divisions or to tackle the underlying causes of Brexit, the priority was to draw up ‘red lines,’” they wrote. “The 48% were not only sidelined, they were alienated.
“The country deserves better. We believe there is a failure of politics in general, not just in the Conservative party but in both main parties as they move to the fringes, leaving millions of people with no representation. Our politics needs urgent and radical reform and we are determined to play our part.”
May’s conservatives do not have a majority in parliament and are only able to govern because of a confidence and supply deal with the DUP.