Gordhan warns of higher deficit

WHEN Finance Minister Pravin Gordhan presents his first mini budget next month, he may reveal that the expected budget deficit for the 2009/10 fiscal year has widened to between seven per cent and eight per cent of gross domestic product (GDP).

The deficit – which is the gap between revenue collection and government spending – was only one per cent of GDP in the previous fiscal year.At the time of the February budget, this year’s deficit was projected at 3,9 per cent.But economists have been doing their sums and have concluded that the news will be far worse.Dawie Roodt, the chief economist of the Efficient Group, urged the government to sell its nearly 40 per cent stake in Telkom – which has a market capitalisation of nearly N$23 billion – to help fund the deficit.’But that would mean using the dreaded word ‘privatisation’,’ Roodt said.The government turned its back on privatisation about 10 years ago and since then has kept its often dysfunctional parastatals within its fold.However, since Telkom has shed its 50 per cent stake in Vodacom, the sale of the government’s Telkom shares would bring in only about N$9 billion at the current share price – which would not go far towards filling the yawning gap between spending and revenue.Gordhan told Reuters on Tuesday that tax receipts were expected to be at least N$60 billion short of target – after an earlier forecast of N$50 billion to N$60 billion.Reuters also reported that, in a written reply to a parliamentary question, Gordhan said that the fiscal deficit would be considerably higher than the original budget forecast of 3,9 per cent of GDP.Roodt estimated that the government’s deficit, which was put at just over N$90 billion in February, was likely to have more than doubled by the year’s end, possibly to as high as N$190 billion.An early indication of the extent of the problem came in June, when Gordhan said he was expecting a shortfall in revenue of up to N$60 billion.Roodt forecast a bigger shortfall – N$70 billion. And he estimated that expenditure would overrun by between N$10 billion and N$20 billion. In addition, he believes there will be additional funding requirements of up to N$20 billion from loss making state enterprises, or ‘so-called below the line items’.Ian Marsberg, a macro strategist at Absa Capital, has a similar sum.’Our latest central forecast is for a 7,7 per cent deficit, while 8,5 per cent is a worst case scenario,’ he said.Marsberg said revenue collection in the first four months of the fiscal year was nearly 10 per cent below the same period last year. And he said government spending in the period was about 28 per cent higher.He conceded that government expenditure trends were ‘notoriously difficult to estimate’, but said ‘the risks to the expenditure side of the budget are tilted firmly to the upside’.Funding the deficit will be problematic in the current environment.Roodt said that the government could draw on its cash balances, ‘which were worth about R100 billion at the start of the fiscal year’.However, he said the government was unlikely to draw more than N$50 billion – because of the need for a cash cushion and also because N$70 billion is kept at the Reserve Bank and withdrawals would interfere with monetary policy.’I believe they will raise R20 billion to R30 billion on the local capital market,’ Roodt said.’They may have started already. And they can raise about R15 billion through treasury bills to take up the short-term slack.’’And they can borrow R10 billion to R20 billion abroad,’ he added.- Business Report