Macroeconomic assumptions: National Treasury revised its growth forecasts to a less severe contraction of 7.2% for 2020 from the 7.8% anticipated at the time of the October 2020 Medium Term Budget Policy Statement (MTBPS). The economy is forecast to grow by 3.3% in 2021 (unchanged from October) before expanding by 2.2% (up from 1.7%) and 1.6% (up from 1.5%) in 2022 and 2023 respectively.

The budget deficit for 2020/21 is slightly smaller, albeit still exceptionally high, at 14% of GDP compared with the October estimate of 15.7% of GDP. National Treasury also aims to reduce the deficit at a slightly faster pace than indicated in the MTBPS. The budget deficit for 2021/22 is budgeted to narrow to 9% of GDP before moderating to 6.3% of GDP by 2023/24

Revenue for 2020/21 is projected to be 6.7% higher than in the MTBPS. In 2021/22, revenue will jump to R1.6 trillion, supported by the anticipated economic recovery and the low base of the past fiscal year. Expenditure for 2020/21 is only slightly higher than the October estimate but fractionally lower as a percentage of GDP at 41.7% compared with 41.9%. The expenditure estimates for 2021/22 to 2023/24 are all modestly higher than projected in October but still reflect considerable expenditure restraint. The outcome still hinges on the government’s ability to contain the public sector wage bill's growth.

Debt metrics: The debt-to-GDP ratio improves significantly due to the lower deficit projections and the anticipated economic growth trajectory. The gross-government-debt-to-GDP ratio is now projected to rise from 63.3% in 2019/20 to 80.3% in 2020/21, slightly lower than 81.8% anticipated last October. After that, the ratio will climb to 84.9% in 2023/24, much lower than October’s estimate of 92.9%. The debt burden is projected to stabilise at 88.9% in 2024/25, also much lower than 95.3% projected in the MTBPS.

Financing: Deficit financing will primarily be via long-term domestic loans, with most issuance on the long-end of the curve.