Treasury widens budget deficit forecast on ailing growth

National Treasury widened its budget deficit forecast for the 2016/17 fiscal year to 3.4% of GDP.

FILE: Picture: Reinart Toerien/EWN.

CAPE TOWN - National Treasury on Wednesday widened its budget deficit forecast for the 2016/17 fiscal year to 3.4 percent of GDP from 3.2 percent previously, saying declining economic growth had reduced tax revenue estimates.

In its medium term budget statement, Treasury said efforts to reduce borrowing had been frustrated by consistent downward adjustments to growth forecasts and tax revenue as household consumption and private sector investment fell.

Aggressive cuts to spending might bolster investor and business confidence but would add to the difficulties facing the economy and could result in credit ratings downgrade, higher interest rates and capital outflows, Treasury said.

The government will aim for a "measured" approach to consolidating its budget by avoiding sharp cuts to spending while continuing to prioritise capital investment.

Additional revenue measures and further spending cuts over the medium term should see net national debt stabilise at 47.9 percent of GDP in 2019/20.