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Barclays Sceptical That Authorities Can Keep Fiscal Deficit Below 5% of GDP

SOUTH AFRICA
  • The MTBPS showed that the country’s fiscal deficit would widen to 4.9% of GDP in FY23-24, lower than Barclays’ forecast of 5.5%. With this lower gap, the funding requirement also comes in lower than they expected, implying that increases to domestic debt issuance would be minimal.
  • Even so, the Treasury believes debt is likely to peak at 77.7% of GDP, above Barclays’ revised estimate of 77%, by FY2025-26. Barclays say they are somewhat sceptical that the authorities will be able to keep the deficit below 5% of GDP this year and see scope for the funding metrics to be increased at the 2024 budget in February.
  • They add that a close look at the details shows that most of the spending cuts are in wages and social benefits – the two most important drivers of the fiscal deterioration in recent years. If the Treasury is able to place a lid on these two items it would be quite positive for the country’s fiscal trajectory, but Barclays say they have some reservations about this.
  • On the FX side, Barclays find ZAR expensive at current levels and see it vulnerable to global risk sentiment. ZAR maintains its high beta to USD, while SA's policy rate differential to the US policy rate remains at historically low levels, implying low carry by historical standards.
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