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Cape Town - Finance Minister Pravin Gordhan complained in his budget speech that as far as economic developments he received what might be called a “hospital pass” at the start of his term five years ago.
The international financial crisis of 2008/09 brought a collapse in commodity prices, sharp declines in international trade and a crisis in financial markets. Yet South Africa survived fairly well and from 2010 had positive economic growth.
Gordhan revised the expected economic growth for last year down to 1.8%, but expected it to accelerate to 2.7% this year, reaching 3.5% in 2016.
Better growth prospects
and thus more tax income are the cornerstone on which he built his expectations
of bringing down the deficit and debt figures, which he on a press conference
before his speech admitted not be be “where it leaves us with much fiscal space".
The budget review states that SA’s improving medium term growth outlook are tied to an improving global outlook, strong economic growth in sub-Saharan Africa and the release of production and transport constraints as major infrastructure becomes operational.
Gordhan admits that the delay in the completion of Eskom’s Medupi power station put constraints on business investment and economic growth.
Apart from he delays in additional electricity supply, domestic risks to growth include protracted labour disputes, which put downward pressure on consumer and business confidence and more pronounced inflationary pressures associated with the depreciation of the rand.
“Thus far it is remarkable that we did not as many countries had to resort to austerity measures like cutting social spending. We hope to walk into a more positive international economic environment. Recent signs still show that all is not bright, but not all are doom either,” he said at the press conference.
The budget review expects consumer inflation to be 6.2% this year and to fall back to 5.5% in 2016. The balance of payments are expected to stay in a deficit, but fell back from 6.1% of GDP last year to 5.5% in 2016.
Capital formation (investment in fixed assets) is expected to pick up from growth of 3.2% in 2013 to 6% in 2016 and export growth from 4.8% to 7% in the same period.
With regard to the weak rand, Gordhan said that the negative view of some emerging markets after the tapering off of US is somewhat irresponsible and unwarranted.
“To now say that emerging markets like us should get their house in order, is unwarranted. We should all work together in an interconnected world to create a sound growth environment to everybody’s advantage.”
He said the rand remains an effective shock absorber against global volatility and is supportive of export growth while reducing the country’s reliance on capital inflows.
“We must ensure fiscal and monetary choices that keep inflation low and maintain recent gains in competitiveness. We have made significant progress in accumulating foreign exchange reserves ($50bn), but there is room for improvement which will support the stability of the currency.”
