South Africa’s Treasury reduced marginally its budget gap target for the current fiscal year (to end-March) to 3.8% of GDP from 3.9% projected in February, but increased significantly the targets for the next two fiscal years.

The budget shortfall is now seen shrinking to 3.3% of GDP in 2016/17 and further to 3.2% in 2017/18. This is well above February’s projections of gaps equal to 2.6% and 2.5% of GDP, respectively. Rating agencies have repeatedly mentioned large budget deficits as a one of the key risk factors for South Africa’s credibility.

Another risk factor is the country’s rising public debt, which soared from around 26% of GDP before the 2009 recession to 47% of GDP as at end-March.

“Our projection is that [gross] debt will rise by a further R600 billion [$45bn] over the next three years, while stabilising as a percentage of GDP,” Finance Minister Nhlanhla Nene said in his Medium Term Budget Policy Statement (MTBPS).

However, the data indicates that the Treasury has revised up its debt targets from February. The net debt-to-GDP ratio projections have been lifted by 1pp to 43.5% for 2015/16, by 0.8pp to 43.9% for 2016/17, and by 1.6pp to 44.7% for 2017/18. Gross debt is seen at 49.4% of GDP in 2018/19, and net debt is seen at 45.4% of GDP that year.

The MTBPS document, published on the Treasury’s website, states that expenditure ceiling remains the primary tool to stabilise debt. Beginning with the 2016 budget, the government will align spending limits in the outer year of the medium-term expenditure framework (MTEF) with the long-term path of GDP growth. Hence, the expenditure ceiling has been set to grow by 2.5% in real terms in 2018/19.