Cape Town - South Africa projected a lower-than-expected 2012/13 budget deficit on Wednesday, reassuring bond investors and rating agencies that the government is keeping a lid on spending despite huge social pressures and sluggish growth.
Presenting the third budget of President Jacob Zuma’s administration, Finance Minister Pravin Gordhan
said spending would exceed revenues by R153bn or 4.6% of gross domestic product (GDP).
The shortfall is a slight improvement on 4.8% in this financial year and sharply lower than the 5.4% economists had been expecting, given a push by leftist factions of the ruling ANC to boost the safety net for South Africa’s legions of poor.
After the loss of a million jobs in a 2009 recession, one in three of the country’s 50 million people are on some form of benefits.
“South Africa’s finances are in good shape,” Gordhan told parliament in Cape Town, in a thinly veiled dig at the two rating agencies that have cut its credit outlook in the last three months, mainly due to fears about the effects of a slowdown in Europe and the United States.
Despite his confidence, the economic crisis in Europe - South Africa’s main trading partner - forced Gordhan to cut his economic growth forecast for this year to 2.7% from a projection of 3.4% outlined in October.
The reduction brings the government into line with the central bank and International Monetary Fund (IMF), but also shows how far South Africa is from the 7% growth deemed necessary to make a dent in unemployment that refuses to drop much below 25%.
With weak growth hitting tax receipts, Gordhan’s options are limited, and his main focus was on moving spending away from the mushrooming public sector wage bill to big ticket infrastructure projects that should ultimately boost growth and jobs.
“On the wage bill, we have to do things differently,” he told reporters in a pre-budget briefing. “We cannot carry on as we are.”
That strategy shows through in a projected pick-up in growth over the next three years, as well as a deficit now forecast to narrow to 3% of GDP by 2014/15.
The projection is well within the realms of fiscal sustainability, but sits in marked contrast to the two years of budget surplus that South Africa ran in the two years leading up to the global financial crisis.
Gordhan also said total public debt should stabilise at 38.5% of output by 2015 - a ratio debt-laden rich countries, especially in Europe, can only dream of.