Cape Town - South Africa will press ahead with policies aimed at pulling the economy out of recession and support state-owned firms' investment programmes, Finance Minister Pravin Gordhan said on Tuesday.
He also told parliament's finance committee that central bank Governor Tito Mboweni enjoyed the government's "fullest support" and welcomed debate on using inflation targeting to set official interest rates, a policy which faces opposition from powerful trade unions allied to the ruling ANC.
"In response to the global economic crisis we will continue to pursue counter-cyclical fiscal policies to support growth to ensure employment creation," Gordhan said in a presentation to the committee.
"We will continue to support the investment programmes for state-owned enterprises through guarantees and direct support to these entities," he added.
The government and its utilities plan to spend R787bn over the next three years building and upgrading infrastructure, with much of the financing coming from loans that will further strain the state companies' balance sheets.
Electricity firm Eskom was given R60bn in direct support and loan guarantees of R175.97bn to secure funds amid tight credit markets and pressure on its credit ratings.
The infrastructure spending is seen as crucial to help the economy pull out of its first recession in nearly two decades and to foster the potential for faster growth. The slowdown has led to job cuts, increasing an already high unemployment rate.
Official data on Tuesday showed non-farm sector jobs fell 2.1% in the first quarter of this year.
The government has stressed that it will keep a lid on debt, saying it has not abandoned its previous conservative stance and plans to return to balanced budgets once the recovery is in place.
The World Bank has forecast Africa's biggest economy will contract 1.5% this year and the Treasury has acknowledged it will have to cut its prediction of 1.2% growth.
The economy is widely expected to rebound in 2010.
Current account gap 'uncomfortable'
Treasury Director-General Lesetja Kganyago told reporters after the briefing South Africa's current account deficit remained uncomfortably high, although it was still adequately financed.
"We've seen that it has come down from last year but it is still sticky (coming) downwards. The comforting thing at the moment is that it is adequately financed," he said.
"... suffice to say that we are uncomfortable even at the level that it is. We would like to see it lower," he said.
Concerns about financing the deficit have weighed on the rand currency over the past couple of years.
The shortfall widened to 7.0% of GDP in the first quarter of 2009, from 5.8% previously. It was driven to a near four-decade high of 7.4% for 2008 by imports to feed the state's infrastructure drive.
Kganyago added, however, that the gap could narrow this year, given an expected reduction in dividends paid to foreigners due to profits being hit by the recession.
Finance Minister Gordhan also referred in his presentation to criticism of central bank Governor Mboweni, who unions say has kept interest rates too high in trying to get inflation into a 3$ to 6$ target band.
"There's a lovely discourse going on and we welcome that ... we need to hear different voices whilst we give certainty that policy remains," he said.
Officials from labour federation Cosatu have said they do not support Mboweni - respected by investors - staying on for a third five-year term after August. President Jacob Zuma must decide soon on Mboweni's contract.
- Reuters