South Africa’s economy is projected to grow slower than anticipated at about 1.5% this year to a marginal 1.7% next year.
According to the Medium Term Budget Policy Statement released today, the projection was considerably lower than the 2% growth projection this year and the 2.4% in 2016 as outlined in the Budget released in February.
The revised growth forecast was the result of electricity supply constraints, falling commodity prices and lower confidence levels.
Investment growth will be just 1.2% this year. This was because limited employment growth and household income constraints were holding back consumption.
The public sector wage bill still weighs heavily on government’s purse strings.
The 2015 public sector wage settlement, which resulted in a 10% increase in wages and benefits for government employees this year, had created a funding shortfall for not only this year but the two years to come.
The agreement led to a R12.2 billion shortfall in money that was available in the compensation budget in the current financial year. Next year this would be R20.6 billion and in 2017/18 the shortfall would have increased to R31.1 billion.
Most of the costs of the agreement would have to be funded from savings, through funding re-allocations and digging into contingency reserves.
The contingency reserves would be drawn down by R5 billion in 2015/16; R10 billion in 2016/17 and R26 billion in 2017/18.
The revised three year budget provides no funding for new jobs, so any departmental intentions to inflate staff numbers or fill vacancies would have to be put on the backburner.
Some institutions would also need to cut current jobs.
On average over the next three years government expenditure is estimated to grow by 7.2% per annum.
The growth is from a revised expenditure of R1.378 trillion in this financial year to just under R1.7 trillion in 2018/19.
Money spent to service debt remains government’s fastest growing expense closely followed by allocations for employee compensation.
The revised revenue for this financial year is R1.2 trillion with a budget balance in the red of R157.9 billion.