All data is delayed
See More

Gordhan puts firm lid on spending

Feb 22 2012 15:13
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.



Read Fin24’s Comments Policy publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Company Snapshot

We're talking about:


Marketing is a big concern in SA's small business community, followed by a lack of confidence and partnering with the wrong people, according to a survey.

SABudget on Twitter

Twitter icon

Join the conversation by using SABudget every time you tweet.


Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

The 25 basis points interest rate increase is:

Previous results · Suggest a vote