South Africa's budget deficit target at risk as wages rise, tax receipts fall

South Africa will overshoot its budget deficit target this year due to higher spending on public wages and an expected dip in tax receipts amid sluggish economic growth and lower commodity prices, economists told Reuters.

The National Treasury, which has in recent years worked to put South Africa on a sustainable fiscal path, in February projected that the consolidated budget deficit would narrow to 4.0% of GDP in the fiscal year ending in February 2024, the lowest in four years.

But the ailing economy, hit by South Africa's worst ever power crisis, infrastructure bottlenecks and high unemployment, is exerting pressure on the public purse.

The budget deficit is likely to be between 0.5% and 1% above the 4% target for 2023/24, two economists said. London-based lender HSBC expects a deficit of 5.1% of GDP, while ratings agency Moody's estimates it could reach 5.6%.

"We're quite concerned that the overall fiscal deficit number is going to look worse," said Sanisha Packirisamy, an economist at investment firm Momentum.

Packirisamy cited low growth, higher public wages, rising interest rates and lower tax receipts as some of the factors expected to impact the deficit.