Idasa welcomes Budget 2011 but sounds a warning

Idasa has responded to the 2011 Budget with cautious optimism, but warns that debt servicing is by far the fastest increasing budget item over the medium-term. In such a context efficiency and effective reprioritisation become even more important than usual, particularly if the objectives of the New Growth Path regarding higher and more inclusive growth are to be realised.

Len Verwey, manager of the Budget Unit of Idasa’s Political Information & Monitoring Service points out that the continued slow recovery of tax revenue does mean that deficit-financing remains necessary, with a deficit outcome of 5.3% of GDP now estimated for 2010/11, and deficits declining from around 5.3% in 2011/12 to around 3.8% in 2013/14. These deficits are necessary not to fund a huge increase in spending, but simply to maintain government spending increases at a very moderate rate over the medium-term. Nevertheless, in nominal terms the cost of debt-servicing will double from its 2007/08 value to 2013/14, and debt service costs will increase by an annual average of around 16% from 2010/11 to 2013/14, or at more than double the proposed rate of increase of allocated expenditure of 7.2%. Read full report here.

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